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Targets + Stops


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Targets + Stops

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  #1 (permalink)
 max-td 
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hi,
just read about the discusions how big a StoppLoss - SL - is allowed to be in ratio to the targets. Lets collect some ideas here !

in my trading i always have bigger SLs than targets - and it works !
there are lots of people (trader and also socalled gurus) out there who pray you only can survive with small SL and big targets - i tried it a long time like this -- and always failed.
I am shure that its also depending on the tradingstyle/setup, but saying it does always kill you, i dont think thats true.

i read about the CL trading : using +8 / +10 ticks targets with -12 tick SL --- why not ! I believe that this can work if the setup + market needs it.
i dont believe in : its only working with target +10 and SL max -8 because the ratio must be like this.

So if the problem is, that your account allows not more then -8 ticks SL when trading 2 contracts and that is why you choose these -8 tick SL -- then its a big wrong thinking ! --- Because in that case the problem is the instrument you are trying to trade ! its the wrong one for your account -
and THIS will kill you !

myself i go up to + 4 tick with a -12 tick SL in some setups - thats even a 1:3 ratio.
shure it kills you with a 50/50 hitrate + its breakeven with 75/25 (without comm.) and its not useful for all tradingstyles.
but its working for me - of course depending on market + setups.

So how our master + intermediate traders think about this subject ?

max-td
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  #2 (permalink)
 vast 
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Hi Max
Well I think it is hard to make a profit with 1:1 unless you have a high % of wins.
Here are 2 links that discuss this at great length. Very interesting reading.
Mike I hope that these links are OK tto post. There are a couple of very respected people posting there thoughts.
Day Trading Forum - Does anyone really make money trading futures?
Day Trading Forum - Impossible to make a successful career trading

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 wh 
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i look for priceaction as targets and trail stopp on high or low ...

also all is variable

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  #4 (permalink)
 Big Mike 
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max-td View Post
myself i go up to + 4 tick with a -12 tick SL in some setups - thats even a 1:3 ratio.
shure it kills you with a 50/50 hitrate + its breakeven with 75/25 (without comm.) and its not useful for all tradingstyles.
but its working for me - of course depending on market + setups.

So how our master + intermediate traders think about this subject ?

I agree we need this kind of discussion. These kinds of things more than anything else (indicators for instance) are what control profitability.

You've said it. This is why long term this strategy is not going to work.

Examine your average MAE over say 50 cash trades. If the average is that many ticks against you, why not adjust your entry?

Then examine your average MFE vs what the market actually did in that move. Are you sure you can only get the ticks you are taking, or is it really that it is going more but your trade management is not set so that you can capture those extra ticks, bringing it to 1:1 ratio?

Mike

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 record100 
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I was not able to prove to myself by backtesting that smaller stops are better. In my automatic system I was working on for more then a year, as an entry for the trade (3 contracts) system is using trend failure signals (looks similar to Mike entry). Eventually, the best on average stops are: 2 ATR (initial stop), 1ATR (after first target of 1ATR hit), break even (after second target of 2 ATR is hit), and then trailing stop (could be EMA21). Still system is not profitable on the long run, but sometimes works extremely well.

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 zeller4 
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record100 View Post
I was not able to prove to myself by backtesting that smaller stops are better. In my automatic system I was working on for more then a year, as an entry for the trade (3 contracts) system is using trend failure signals (looks similar to Mike entry). Eventually, the best on average stops are: 2 ATR (initial stop), 1ATR (after first target of 1ATR hit), break even (after second target of 2 ATR is hit), and then trailing stop (could be EMA21). Still system is not profitable on the long run, but sometimes works extremely well.

Hi Record100,
what have you found is the good ATR period for your stops ? ie atr5, 7, or more?
thx
Kirk

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 Big Mike 
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I just uploaded a video where I plead and beg fellow traders like yourself to work on your money management and not on your chart and indicators. The video talks about money management, psychology, indicators, and journals.

Hope you guys watch it and find it of use:


Mike

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  #8 (permalink)
Neal
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To me, a trader needs to have confidence in his Trading Strategy and in his Trade Execution, and pursue excellence in both.

An effective Trading Strategy consists of one or more trade types that each has a Setup Condition, an Entry Trigger and Trade Management.

Effective Trade Execution requires proper psychology, ability to identify a qualified trade timely and an execution platform that allows efficient application of the Trade Management.

Which of these is most important? People put percentages and extreme emphasis on one over the other, but aren't they all important in order to be able to trade effectively and profitably?

When someone claims to have a 70% winning strategy, what does that mean? If there is no Trade Management component to that claim, it means nothing. If someone says, "I have 70% winning trades, profiting 2 ticks while risking 8 ticks", would that be an effective strategy?

So what is the proper Trade Management for your Trading Strategy?
The one that conforms to it, based on historical trades, to achieve a certain level of profitability.

Your entries have to be sufficiently timely to consistently achieve your profit objectives without assuming too much risk to allow your Trading Strategy to be practically and mathematically successful.

It seem the only way to do this is to consistently identify your recent trades and determine the Maximum Adverse Excursion (MAE) and the Maximum Favorable Excursion (MFE) of each trade, then use this information as the basis for what has been consistently achievable, and go from there.

For short-term day trading, the simplest evaluation: is there a 1:1 Loss:Win ratio that you can employ that gives you an average 65% or greater win rate? In a 1:1, all in, all out, simple Trade Management, you have to overcome a 55% winning percenatge in order to move beyond breakeven, net of commissions.

Beyond that, employing Stop Loss adjustment techniques of moving it to Break Even or Trailing is more complicated, and more challenging to identify on historical, static charts, as intrabar price movement may not be as obvious. You must then go down to smaller size tick charts to make sure these Stop Loss adjustments are effective over time. The challenge of these adjustment strategies is the possibility of taking more smaller wins while taking plenty of full losses.

That's more than enough for now from me. I look forward to additional thoughts and discussions on this important topic.

And thank you Mike for your video encouragement to put the work in on establishing an effective Trade Management for our Trading Strategies.

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 caprica 
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Neal View Post
To me, a trader needs to have confidence in his Trading Strategy and in his Trade Execution, and pursue excellence in both.

An effective Trading Strategy consists of one or more trade types that each has a Setup Condition, an Entry Trigger and Trade Management.

Effective Trade Execution requires proper psychology, ability to identify a qualified trade timely and an execution platform that allows efficient application of the Trade Management.

Which of these is most important? People put percentages and extreme emphasis on one over the other, but aren't they all important in order to be able to trade effectively and profitably?

When someone claims to have a 70% winning strategy, what does that mean? If there is no Trade Management component to that claim, it means nothing. If someone says, "I have 70% winning trades, profiting 2 ticks while risking 8 ticks", would that be an effective strategy?

So what is the proper Trade Management for your Trading Strategy?
The one that conforms to it, based on historical trades, to achieve a certain level of profitability.

Your entries have to be sufficiently timely to consistently achieve your profit objectives without assuming too much risk to allow your Trading Strategy to be practically and mathematically successful.

It seem the only way to do this is to consistently identify your recent trades and determine the Maximum Adverse Excursion (MAE) and the Maximum Favorable Excursion (MFE) of each trade, then use this information as the basis for what has been consistently achievable, and go from there.

For short-term day trading, the simplest evaluation: is there a 1:1 Loss:Win ratio that you can employ that gives you an average 65% or greater win rate? In a 1:1, all in, all out, simple Trade Management, you have to overcome a 55% winning percenatge in order to move beyond breakeven, net of commissions.

Beyond that, employing Stop Loss adjustment techniques of moving it to Break Even or Trailing is more complicated, and more challenging to identify on historical, static charts, as intrabar price movement may not be as obvious. You must then go down to smaller size tick charts to make sure these Stop Loss adjustments are effective over time. The challenge of these adjustment strategies is the possibility of taking more smaller wins while taking plenty of full losses.

That's more than enough for now from me. I look forward to additional thoughts and discussions on this important topic.

And thank you Mike for your video encouragement to put the work in on establishing an effective Trade Management for our Trading Strategies.

Well Said Neal and worth repeating because people may assume they know this but they shrug it off and don't actually take the necessary action to employ this type of mentality in their trading plans. To do so (not employ it) is to lose money in a mindless fashion.

People focus on what they think they can easily change. Real change takes time and hard work. The right thing to do and the hard thing to do are usually the same. Developing a robust trading plan that is simplistic enough to be obtainable and sophisticated enough to be profitable is no easy task, and then the real work begins afterwards: following it.

Winning percentage is meaningless, as you've said, without the details. 90% winners sounds great, until you find out the stops are huge and the targets tiny.

Your idea about reviewing the MAE and MFE are spot on. These values tell you a lot about your trades. If you add another field to manually input an 'perfect mfe' which would indicate how far a trade "would have" gone if you had not exited, in other words how far until the signal was no longer any good under your rules for reversal, then you can begin to measure your effectiveness.

Then you take this information and string it together to see how much percentage of the moves you are capturing. Not every move of the market, but the moves where you had a signal and took it. Did you capture 50% of the move? 10%? 100%? Working this angle will help you create an enhanced exit strategy on your trading plan, one designed to capture the most of each move. It is not nearly as easy as it seems because in the effort to catch 100% or 90% etc from a dynamically changing exit you often will give back much vs a fixed target. This method absolutely requires multiple contracts being traded to be of any use.

I really enjoy this type of conversation. It is very stimulating and in my humble opinion this discussion board needs more of this and less of the whiz-bang charts everyone is trying to work on all the time.

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 record100 
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I was using period 14 to calculate ATR and did not study, whether period 5 or 7 is better. Before, i was experimenting with exact values for the stops, like 20 tick, then 19 tick etc. and tried to find optimal values for them, found it more convenient to use ATR.
Also you could experiment with different trailing stops, like ATRtrailing, % trailing, supertrend etc. from my opinion they are not better then, say EMA(21) or SMA(6)[4] but could require more computation power.
The worst thing is - reasonable money management was built into the system, general philosophy of traiding is stating, right money management could help you win, even if your traiding signals are not perfect. Was not able to prove it also.

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d488y2
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I like to trade an odd number of contacts and have 2 Price Targets and a 8 tick Stop.
The 1st target @ +8 ticks second @ +16 Ticks.
If I'm trading 5 contacts then 3 come off at the 1st target and my stop is moved to B/E
If the market keeps moving in my favor than my stop moves up to +2 Ticks @ +10 and another 2 for every 2tick higher move.
If the market hits my +16tick target then I'm done for the day.
If the market takes me out @ B/E, +2 or +4 than the next trade I go in with 3 contacts.
This reduces my risk and if the second trade hits the stop then I'm net 0 after that trade.
Also if I have 2 full stops in a row than I'm head is not right and I'm out for the day.
No point in giving the market anymore of my hard earn $$$$.

-D4

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 zeller4 
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Hello -D4-,

did you program this into ATM or as a conventionally coded strategy?

sounds like parts of my trading plan, hope it works well.

Kirk

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 Ausy Mick 
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Hi guys.

I watched the video that Mike posted about psyc and money management. It felt like I was in a boxing ring and at the end of it this was me - . It is a very hard message but one that is 100% true.

It is sometimes amazing how we look to find the answers in all the wrong places. Like Mike said when we lose money it is not our broker, the indicators or anything else; it is us.

As for me - I'm ordering my copy of Trading for a living ....

I also thought to share a little bit of how I trade ...
I am still a smaller trader currently trading the Es two contracts at a time.
First profit 4ticks, second 6ticks. Initial stop at 5 ticks. When pt1 is hit I move the stop to 1 tick below BE.

This way I maintain the 1:1 risk/reward ratio. The one thing that I do have to fight is the urge to overtrade , and for smaller traders this is difficult because it feels like you can justify the overtrading because "you need to make money"

Anyway for now thats my 2cents worth. If you guys have any ideas/advice for smaller traders please share.

Take care

Mick

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 wh 
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I think there should be no fixed stop and target rules.
i trade on 4 or 8 range (depending on volatility) set a stop order on a high (long) or low (short) of a bar with my rules. i use an atm with 8 ticks and flexi target (for price action) and a stop loss with 8 ticks (optional). this is when i only trade the move ... the position is filled i set my stop on the high of the current bar for short and low for long ... the price target goes manuelly ...
now i set a trail stop on low or high for each current bar real or in mind. the market will stop me out. depending on market situation, i have big winners and small loser. the problem is i have no ratio ... and it comes to overtrading. and small losers win and take my money. the key is discipline. which I have not yet

i think that is Scalping or trading. i do not know. i have played with strong stopp and target but this works for me better ...
i can live while money and account management save me. i have three acc. one for live one trade for a day ... one for to be rich which is the most time down (no discipline) and the sim acc. for playing ...

wh

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d488y2
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zeller4 View Post
Hello -D4-,

did you program this into ATM or as a conventionally coded strategy?

sounds like parts of my trading plan, hope it works well.

Kirk

Hi Kirk

I trade with Infinity AT and the move to B/E is auto than I like to manually move the stop higher after that.
I could set the DOM to move my stop higher with a trailing stop.

-D4

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 caprica 
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Mick,Have you received your copy of Trading for a Living yet? How do you like it so far.

Everyone, this thread is a very important one and I really enjoy these discussions. In the past I have set my stops based on ATR multipliers, indicators like ATRtrailing and many others, swing hi/lo and more. Recently I have been using a fixed stop because I am using a multi-target fixed target system where each target comes off at a set price.

I would imagine those of you using a varying stop based on something like ATR or swing hi/lo are also using a varying target. I am wondering if you are maintaining a w/l ratio of greater than 1 with this method? I like to have the first and second target come off to secure my position and not give back ticks then the third target (or more) grows much wider as a runner.

I do not average down or average up. I do scale out. My first target is about 50% of my stop, my second target is about 100% of my stop and the runner is 200% or bigger. My goal is 70-75% accuracy with a w/l ratio of > 1.

"Let us be thankful for the fools. But for them the rest of us could not succeed." - Mark Twain

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 max-td 
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step by step i get more interested in these MM / RM things.
i am no backtester i as sayed yet - so there is no experience about this at all.
i ask from my state of knowing nothing about optimizing + stuff.

is it possible to optimize a conditionset in the direction of Stops + targets ?
i dont want to play with indicator-parameters, only with MM / RM.

Has anyone a kind of a "shell-strategy" that is easy to use for backtesting or an optimizer
where i just can put my conditions in ?
i like to test this with FESX in tickcharts - fix rules (maybe a simple crossover-strategy) and want to play with varitions at Stops / TrailStop / Targets.
As i am new in this - i am neutral so far -absolutily openminded to whats coming out of this.

i will do it in a thread, so we all can watch + discuss this.
What do i need else ?
in Ninja we have backfill-data , what do i feed an optimizer with ?
wichone i shopuld take ?
is there anyone who likes to do this in cooperation ?

looking forward to whats coming up !

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 TheRumpledOne 
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max-td View Post
hi,
just read about the discusions how big a StoppLoss - SL - is allowed to be in ratio to the targets. Lets collect some ideas here !

in my trading i always have bigger SLs than targets - and it works !
there are lots of people (trader and also socalled gurus) out there who pray you only can survive with small SL and big targets - i tried it a long time like this -- and always failed.
I am shure that its also depending on the tradingstyle/setup, but saying it does always kill you, i dont think thats true.


"Look, for example, at this elegant little experiment. A rat was put in a T-shaped maze with a few morsels of food placed on either the far right or left side of the enclosure. The placement of the food is randomly determined, but the dice is rigged: over the long run, the food was placed on the left side sixty per cent of the time. How did the rat respond? It quickly realized that the left side was more rewarding. As a result, it always went to the left, which resulted in a sixty percent success rate. The rat didn't strive for perfection. It didn't search for a Unified Theory of the T-shaped maze, or try to decipher the disorder. Instead, it accepted the inherent uncertainty of the reward and learned to settle for the best possible alternative.

The experiment was then repeated with Yale undergraduates. Unlike the rat, their swollen brains stubbornly searched for the elusive pattern that determined the placement of the reward. They made predictions and then tried to learn from their prediction errors. The problem was that there was nothing to predict: the randomness was real. Because the students refused to settle for a 60 percent success rate, they ended up with a 52 percent success rate. Although most of the students were convinced they were making progress towards identifying the underlying algorithm, they were actually being outsmarted by a rat." - P64 "HOW WE DECIDE"


What I realized was all conventional trading wisdom is "wrong".

I have distilled trading into the following:

ALL YOU NEED TO KNOW ABOUT TRADING
  • Price either goes up or down.
  • No one knows what will happen next.
  • Keep losses small and let winners run.
  • POSITION SIZE = RISK / STOP LOSS
  • The reason you entered has no bearing on the outcome of your trade.
  • You can control the size of your loss (skill) but you can't control the size of your win (luck).
  • You need to know when to pick up your chips and cash them in.
Expectancy = (Probability of Win * Average Win) - (Probability of Loss * Average Loss)



You can not control the probabilities of wining or losing.


You can not control your average win size.


The only part of the equation that you can control is your average loss size.

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 MXASJ 
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Here is something you can play with. It is a strategy that allows you to Optimize based on Stop Loss and Profit Target. It uses two contracts... one takes the target and the other is a "runner" with a trailing stop loss.

Nothing fancy here, its based on code from the Ninja Support site (SampleScaleOut I think).

Some things I learned: In a clear bull or bear market... buy and hold with a very wide stop usually wins. You have only a single trade for the life of the contract. You need to use realistic stops/targets based on your risk rules (ie if your rules say risk no more than $500 on a single trade that may dictate your stop size and trading timeframe).

Please play around with this and share your thoughts. Also feel free to modify and post it back... perhaps the stops tighten the further into profit you get, for example, or tie the stop/target values to an indicator (VIX, ATR, lunar cycles, whatever).

All good weekend fun!

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 MXASJ 
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Attached a Strategy Analyzer report of a strat optimized on Stop and Target (the code is basically the same as the strat posted above but with different entry rules).

This is using 30 days of tick data on the ZN. While trades were only profitable 45% of the time, it has a positive expectancy when using a 9 point stop and a 12 point target.

I'm obviously not going to run out and throw money at this strategy based on this optimization, but it does give me some ideas for further testing.

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 zeller4 
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Hello MXASJ,
I reviewed the code and had the initial thought that I didn't see the arrows displayed.

The arrows needs to be adjusted as follows (or in a similar manner):

 
Code

DrawArrowUp("My up arrow" + CurrentBar, false, 0, Low[0] - 4*TickSize, Color.Lime);
 
Code

DrawArrowDown("My down arrow" + CurrentBar, false, 0, High[0] + 4*TickSize, Color.Red);
other than that, no immediate comments. I don't use market orders in real-life and don't like the NT manner of EnterLong/Short...
I'm trying to get a strat to work with scaling out but using limit entry orders. I'm stuck temporarily until I figure the nuances of coding the NT limit orders / stop orders.

Kirk

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  #22 (permalink)
 MXASJ 
Asia
 
Experience: Beginner
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Posts: 798 since Jun 2009
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Thanks Kirk. Yep its a bit buggy. I just deleted a bunch of other stuff in an existing template I use for backtesting and added the Close[0]>Close[1] etc for long/short before posting it. I just tried it on some contracts and its going long only, which my original strat doesn't do.

A better way (if someone wants to step up to the plate) might be random entries (long or short) every x number of bars if marketposition=flat.

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  #23 (permalink)
 Big Mike 
Site Administrator
Swing Trader
Data Scientist & DevOps
Manta, Ecuador
 
Experience: Advanced
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I made a few quick changes. I'd like to work on this more but don't have time right now. The random entries have always been an interesting thing for me as an exercise in money management, but I don't have the extra few minutes right now to code it up

I did make these changes:

 
Code
                            
// GO LONG 
if (Open[0] > Close[1] && Close[0] > High[1]) 
 
Code
                            
// GO SHORT
if (Open[0] < Close[1] && Close[0] < Low[1]) 
I also commented out the if Flat part, because if a new condition for a reversal occurs I want to exit the open trade and enter the new direction.

 
Code
                            
// Only allow entries if we have no current positions open
//if (Position.MarketPosition == MarketPosition.Flat) 
The idea works well in trending periods but obviously fails when market is not trending, which is the majority of time.

Mike

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  #24 (permalink)
 wuolong 
Canada
 
Experience: Intermediate
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Posts: 76 since Jul 2009
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I was testing a commercial auto-trader recently, and it had the similar issue with non-trending market. If I let it run without intervention, all the small profits would erode into big losses due to frequent whipsaws. I am wondering if there is any effective way to tell a non-trendng market.




Big Mike View Post
I made a few quick changes. I'd like to work on this more but don't have time right now. The random entries have always been an interesting thing for me as an exercise in money management, but I don't have the extra few minutes right now to code it up

I did make these changes:

 
Code
                            
// GO LONG 

if (Open[0] > Close[1] && Close[0] > High[1]) 
 
Code
                            
// GO SHORT

if (Open[0] < Close[1] && Close[0] < Low[1]) 
I also commented out the if Flat part, because if a new condition for a reversal occurs I want to exit the open trade and enter the new direction.

 
Code
                            
// Only allow entries if we have no current positions open

//if (Position.MarketPosition == MarketPosition.Flat) 
The idea works well in trending periods but obviously fails when market is not trending, which is the majority of time.

Mike


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  #25 (permalink)
 gregid 
Wrocław, Poland
 
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Posts: 651 since Aug 2009
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That's exactly what I was looking for MXASJ! Thanks a lot for the strategy sample!

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