An interesting trailing stop technique for you technical junkies from our friend Chuck...
Loads more at....
http://www.traderclub.com/discus/messages/107/107.html
Loads more at....
http://www.traderclub.com/discus/messages/107/107.html
Interesting. I have recently started using parabolic sar myself as a trailing stop method but similarly was dissatisfied with the initial stop level being too far away from my (seperately) triggered entry.
To comabat this, I have been using an ATR based stop initially, moving stop to breakeven after 1.1 ATR in my favour, then locking in 1 ATR once 2.2 ATR in my favour. I then wait for the parabolic SAR to catch up and then move stop in line with this.
A somewhat more cobbled together idea than the attachment above but sounds like it achieves a similar thing.
To comabat this, I have been using an ATR based stop initially, moving stop to breakeven after 1.1 ATR in my favour, then locking in 1 ATR once 2.2 ATR in my favour. I then wait for the parabolic SAR to catch up and then move stop in line with this.
A somewhat more cobbled together idea than the attachment above but sounds like it achieves a similar thing.
Grey1
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darren,
Just some thing for you to think about ,
What are the chances of trade getting to 1.1 ATR and 2.2 and ....
A good trailing stop should accommodate the chance of getting to its first target as well as the probability of hitting its stop..
lets say there is 30 % chance of getting to 1ATR but 50% chance of hitting the stop.. What would we do then ..
Regards
Just some thing for you to think about ,
What are the chances of trade getting to 1.1 ATR and 2.2 and ....
A good trailing stop should accommodate the chance of getting to its first target as well as the probability of hitting its stop..
lets say there is 30 % chance of getting to 1ATR but 50% chance of hitting the stop.. What would we do then ..
Regards
Mmm
I can look back over previous trades and come up with an answer to this based on the results of those trades, or do you mean what is the probability of an individual trade hitting stop/ hitting 1.1 atr profit based on some other calculation?
If it is some other calculation, I would't have a clue how to do this.
To be honest, as I said before, it's rather a cobbled together method, based around the fact that all my trades are "with the trend" and therefore there is a logical expectancy(?) that the trade will go in my favour by more than it is likely to go against me?
I can look back over previous trades and come up with an answer to this based on the results of those trades, or do you mean what is the probability of an individual trade hitting stop/ hitting 1.1 atr profit based on some other calculation?
If it is some other calculation, I would't have a clue how to do this.
To be honest, as I said before, it's rather a cobbled together method, based around the fact that all my trades are "with the trend" and therefore there is a logical expectancy(?) that the trade will go in my favour by more than it is likely to go against me?
The stop is more likely to be hit. Would lowering it be the best idea?
I assume that given the probability stated that the stop is < 1 ATR so is too tight.
This would expose us to more risk however. So could we say that too little risk (as in the example) is infact more risky in the long term as it will indicate a high number of losing trades, when our winners don't win as much in comparison (1 ATR)?
I assume that given the probability stated that the stop is < 1 ATR so is too tight.
This would expose us to more risk however. So could we say that too little risk (as in the example) is infact more risky in the long term as it will indicate a high number of losing trades, when our winners don't win as much in comparison (1 ATR)?
Grey1
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There is 62% chance of stocks/instruments hitting their 1ATR .. This is a well researched figure using various back-testing on numerous charts..
This is also true when traders use 1ATR for their stop loss, which means there is around 1.25 times more chance of hitting their stop before becoming profitable...
so what is the problem then ?
Not much provided traders concentrate on their entry to make sure their stop loss is not hit sooner than 1ATR while letting a profit to run to above 2 ATR .. They then can move their stop to 1ATR..
ENTRY IS THE KEY FOR SUCCESSFUL TRADING ..
Hope I am clear
This is also true when traders use 1ATR for their stop loss, which means there is around 1.25 times more chance of hitting their stop before becoming profitable...
so what is the problem then ?
Not much provided traders concentrate on their entry to make sure their stop loss is not hit sooner than 1ATR while letting a profit to run to above 2 ATR .. They then can move their stop to 1ATR..
ENTRY IS THE KEY FOR SUCCESSFUL TRADING ..
Hope I am clear
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Grey 1-
Quote: This is also true when traders use 1ATR for their stop loss, which means there is around 1.5 times more chance of hitting their stop before becoming profitable...
Sorry, I don't understand this, especially the 1.5 bit (or are you referring to the 30%-50% eg above?).
If I my stop at 1 ATR from entry, and my profit target at 1 ATR away from entry, then I would assume my chances of profit or loss are 50-50 assuming random entry in a non trending market. HOWEVER, if I take care in my entry - chose a trending market, then I would hope that my chances of hitting the 1 ATR target are higher than hitting the 1 ATR stop? (assuming the target is in the same direction as the trend)
Therefore, what if I was to trade in a trending market, have my stop say 1 ATR away, and my target 2 ATR away. Assuming I trade in the same direction as the trend, this should win 50% of the time minimum?
Quote: This is also true when traders use 1ATR for their stop loss, which means there is around 1.5 times more chance of hitting their stop before becoming profitable...
Sorry, I don't understand this, especially the 1.5 bit (or are you referring to the 30%-50% eg above?).
If I my stop at 1 ATR from entry, and my profit target at 1 ATR away from entry, then I would assume my chances of profit or loss are 50-50 assuming random entry in a non trending market. HOWEVER, if I take care in my entry - chose a trending market, then I would hope that my chances of hitting the 1 ATR target are higher than hitting the 1 ATR stop? (assuming the target is in the same direction as the trend)
Therefore, what if I was to trade in a trending market, have my stop say 1 ATR away, and my target 2 ATR away. Assuming I trade in the same direction as the trend, this should win 50% of the time minimum?
Grey1
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BBB,
you are correct , if I used 1ATR for exit and 1ATR for entry then the chances of hitting either will be the same and both are 62% . This means there is 62% of chance of hitting your stop ( which is a lot ) and 62% chance of hitting your first target..
Since trading is about taking less risk for more reward ( other wise it wont be trading and we would be better off to call it gambling ) then we ought to have a system where the chance of hitting the stop is far less than having similar reward.
Example
System X offers a 30 % chance of hitting its stop with 70 % meeting its target with a R/R of 1..
VER VERY difficult to design such systems .
PS:-- I have corrected the 1.5 to 1.25 a typo error.. All systems are compared with a coin tossing system ( 50/50 probability of out come with R/R of 1) to see how much of the system performance is due to the luck or randomness.. ( hence the figure 62/50 ~1.25 )
you are correct , if I used 1ATR for exit and 1ATR for entry then the chances of hitting either will be the same and both are 62% . This means there is 62% of chance of hitting your stop ( which is a lot ) and 62% chance of hitting your first target..
Since trading is about taking less risk for more reward ( other wise it wont be trading and we would be better off to call it gambling ) then we ought to have a system where the chance of hitting the stop is far less than having similar reward.
Example
System X offers a 30 % chance of hitting its stop with 70 % meeting its target with a R/R of 1..
VER VERY difficult to design such systems .
PS:-- I have corrected the 1.5 to 1.25 a typo error.. All systems are compared with a coin tossing system ( 50/50 probability of out come with R/R of 1) to see how much of the system performance is due to the luck or randomness.. ( hence the figure 62/50 ~1.25 )
Thanks - thats clearer now.
With the example just given though, if we have a stop at 1 ATR, and the exit at 1 ATR (your system X), then I'm sure the chances tou state (30/70) wouldn't be that difficult for a discretionary trader.
I know it's not using ATR, but if I look back to my past performance, 80% of my trades cover my initial risk very quickly. I am a discretionary trader though, and I don't think you could code my thought process into Tradestation (heaven forbid!). I don't consider myself to be an excellent trader - I know far more profitable people than myself, but I wouldn't feel comfortable trading how they do - thats another thread though!
With the example just given though, if we have a stop at 1 ATR, and the exit at 1 ATR (your system X), then I'm sure the chances tou state (30/70) wouldn't be that difficult for a discretionary trader.
I know it's not using ATR, but if I look back to my past performance, 80% of my trades cover my initial risk very quickly. I am a discretionary trader though, and I don't think you could code my thought process into Tradestation (heaven forbid!). I don't consider myself to be an excellent trader - I know far more profitable people than myself, but I wouldn't feel comfortable trading how they do - thats another thread though!