@alexspeed Predictor Discretionary and PredictorDay. You have to search for those or else I'll get in trouble for advertising.
Stops
I want to share a bit about stop placement because I'm struggling with it. In my tests of my systems, I've found that adding too tight stops to a good system will result in a very jagged stair stepped equity curve versus a smooth equity curve -- if the stops are too tight then the equity curve will turn negative. Price stops transfer the open equity risk to the closed drawdown (realized) risk. A trade has a MAE, max adverse excursion, and a closed profit/loss. To implement stops, one must be able to place trades without any MAE. Momentum trades tend to have lower MAE while mean reversion trades tend to have rather high MAE.
Waiting for a better entry, doesn't infer that one will have reduced risk, i.e using limit orders may result in only getting filled on losers. This is why I almost always enter on market and exit on limit -- unless it is a trade I planned out in advance.
What I found in testing is that the largest stop is the best stop which tends to be a stop of about 30-40 points in ES. This is a very big stop. Fortunately, I found that if I add a stop, I have a range of where I can use that stop without hurting my performance too much. In other words, if I use a 12 point, 15 point, or 20 point stop then they tend to perform to similar degree.
In general, on momentum trades I will use a tighter stop and on reversal trades I use a larger stop. It may be the futures market is too efficient to use a fixed stop. I mean that whether or not one can use a stop or not depends on one knowing if one will have a trend/range day. Setting a big stop on a trend day is a disaster. Setting a tight stop on a range day doesn't work either. It may be the futures market is efficient if one doesn't take some larger risks that hing on that aspect.
My methods are too complex to describe simply. But, I will set stops -- at a low, below a low, at a previous value area, and below a previous value by a certain amount. If the market trends then setting a stop near the previous value can work because we don't tend to retrace back to previous value. However, when the market ranges then we tend to test those previous values and take them out.
One solution is just to risk 3% to 3.5% on every single trade. This may be the optimal solution but is hard to stomach. As again, I'm trying to trade 4 to 6 contracts on 85k. This means I have to be willing to take hits in the 3k-4k range. I'd like to keep that to a $1200 to $2200 loss which means I have to set a tighter stop.. typically below previous value but it gets hit.
So I know I said I solved this problem... But I haven't committed to using a 3% to 3.5% capital stop on every trade. Maybe a mix is needed. Or maybe I need to drop my leverage to 3-4 cars.
For me to hit my peak performance then I feel I can't take these bad stop hits... but maybe that's not the solution ... maybe there is another solution... such as sizing larger only on my best trades or hedging. Again hedging works during range market but not trend market.
Stops
I want to share a bit about stop placement because I'm struggling with it. In my tests of my systems, I've found that adding too tight stops to a good system will result in a very jagged stair stepped equity curve versus a smooth equity curve -- if the stops are too tight then the equity curve will turn negative. Price stops transfer the open equity risk to the closed drawdown (realized) risk. A trade has a MAE, max adverse excursion, and a closed profit/loss. To implement stops, one must be able to place trades without any MAE. Momentum trades tend to have lower MAE while mean reversion trades tend to have rather high MAE.
Waiting for a better entry, doesn't infer that one will have reduced risk, i.e using limit orders may result in only getting filled on losers. This is why I almost always enter on market and exit on limit -- unless it is a trade I planned out in advance.
What I found in testing is that the largest stop is the best stop which tends to be a stop of about 30-40 points in ES. This is a very big stop. Fortunately, I found that if I add a stop, I have a range of where I can use that stop without hurting my performance too much. In other words, if I use a 12 point, 15 point, or 20 point stop then they tend to perform to similar degree.
In general, on momentum trades I will use a tighter stop and on reversal trades I use a larger stop. It may be the futures market is too efficient to use a fixed stop. I mean that whether or not one can use a stop or not depends on one knowing if one will have a trend/range day. Setting a big stop on a trend day is a disaster. Setting a tight stop on a range day doesn't work either. It may be the futures market is efficient if one doesn't take some larger risks that hing on that aspect.
My methods are too complex to describe simply. But, I will set stops -- at a low, below a low, at a previous value area, and below a previous value by a certain amount. If the market trends then setting a stop near the previous value can work because we don't tend to retrace back to previous value. However, when the market ranges then we tend to test those previous values and take them out.
One solution is just to risk 3% to 3.5% on every single trade. This may be the optimal solution but is hard to stomach. As again, I'm trying to trade 4 to 6 contracts on 85k. This means I have to be willing to take hits in the 3k-4k range. I'd like to keep that to a $1200 to $2200 loss which means I have to set a tighter stop.. typically below previous value but it gets hit.
So I know I said I solved this problem... But I haven't committed to using a 3% to 3.5% capital stop on every trade. Maybe a mix is needed. Or maybe I need to drop my leverage to 3-4 cars.
For me to hit my peak performance then I feel I can't take these bad stop hits... but maybe that's not the solution ... maybe there is another solution... such as sizing larger only on my best trades or hedging. Again hedging works during range market but not trend market.