Our 400,000 Trade Test Proves Using Stops Is Not Very Bright

In my back testing as soon as I open up the stop distance the profit increases.
EG While trading the SPI200 a 50 point stop doubles your profit as opposed to a 30 point stop.
I trade this with 25.00 / pt. The "take profit" is 50 points. The filters I'm using on entry give a 75% win ratio. The only problem is I cannot automate this so many entry signals are missed. This method also relies on set and forget no messing with stops as in bring to B/E
However using no stops makes me uncomfortable and I've been caught in silly fat finger moves before, the trick is to take a loss when it's time and not be greedy and trade on hope.

In saying all that the TF you pick and and the experience you have will dictate what you ultimately do/trade
 
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Stop distance is dependent on trading style and timeframe. If you're a volatility junkie like me, you can't lock into the expansion without some kind of reasonably tight trailing stop mechanism
 
marketsurfer said:
This is the results of 400,000 tested trades--- like it or not, it is the facts-- don't believe it? If you got the data, run the test yourself---so you either listen to quantitative facts or continue to go by "feelings" and old wives tales about the market.


Stops are an integral part of most stock trader’s arsenal. Many consider it foolhardy and naïve to trade without a fixed stop in place prior to entering a position.

As with most of the conventional market wisdom, these feelings do not hold up to vigorous testing. We have run 100’s of tests have that have proven fixed stops actually hurt the performance of any trading system.

One example took all shares trading above their 200 day Simple Moving Average closing at its 10 day low. The trade would be exited on a close above its 10 day Simple Moving Average or when a stop is hit at a variety of percentage points below the entry.

Out of nearly 400,000 tested trades, stops hurt the performance of the system. In fact, the tighter the stop, the worse the performance. Even stops as wide as 50% away from the entry dampened the systems returns. Of course there are psychological benefits to using fixed stops but at the expense of profit. Dropping the fixed stops is a sure way to improve the results of your trading system.
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The first thing you need to know is, FULLY DETAILED, how the system that your are testing is working because behavior can be different, so impact on stops can be different too. On top of that your "system" is not a system at all. MA's cannot be taken as a serious system.

Two extreme examples:
  • system takes position and waits till account is wiped out or tripled, as there are no stops
  • system that self adjusts all indicators and takes profit or loss automatically once a certain risk is reached.
The result of placing stops will be completely different in both cases. So the conclusions will be different too.

I did the test over +1000 trades on my system and there was clearly a huge difference depending of where the stops were placed. Close stops resulted in bad performance, increasing the stops improved the performance and at a certain point the performance started to decrease again. So there was an optimal point to place stops. Within a certain range, changing the stops, did not make any difference at all. So just opposite conclusion from your test.
But to me your test is like nonsense. You cannot project the results from testing 1 system on all the other existing systems as they all behave differently. It is like testing 1 car and extrapolating the results to all other cars.
You are not God who knows everything. If you were, you would be the richest person on earth.
 
Maybe this should be in it's own thread but here are the results of a back test. All I did was change the inputs (SL) and (TP) until the % wins were the highest also I had to find the right time frame that also supported the highest win %. I was surprised that by changig the SL by 2 pts how it increased the profits.

What I'd like to know is HOW reliable would these parameters be in real time. I understand the human element in execution would be a huge factor but if in theory a trader did execute proper .... how reliable would these stats be. I understand it's a (backtest) Past data will not occur the same in the future
Not saying this back test is a game changer in anyway just curious what you guys think.
The 2 future markets are the SPI200 and the DAX using one SMA as the entry trigger, very very simple system. I'd like add one other entry filter but this software will not do it, if anyone does have good software for this let me know cheers.
 

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DDR said:
Maybe this should be in it's own thread but here are the results of a back test. All I did was change the inputs (SL) and (TP) until the % wins were the highest also I had to find the right time frame that also supported the highest win %. I was surprised that by changig the SL by 2 pts how it increased the profits.
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This proofs already the stupidity of MS statement. Same data, change a bit the parameters and a completely different result.
A good system allows you to change, within certain limits of course, the parameters without fundamentally influencing the result. I call it the stability of a system. If your system jumps heavily up and down it means it is a bad system.
 
Redneck said:
Why is this bullshit - don't use stops - thread in TA..., and not in the Risk Management section
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MS likes provocating TA adepts.

But he is consequent: he wiped out a fund because he does not use stops. :D
But at the same time he proves that his statement is wrong as he wiped out. Using stops is maybe not very bright, but not using them is plain stupid.
I think his ex-clients don't agree with his statement not to use stops. :mad:
 
Redneck said:
Why is this bullshit - don't use stops - thread in TA..., and not in the Risk Management section

RN
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Because Surf desperately want to resume any form of controversy he can. First it is the anti-TA mantra, now it is the anti-stop mantra... which he will transition into anti-TA and claim he didn't initiate it to Baron...

If he could actually trade, a big "IF", he would trade more and squawk less...
 
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