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A Random Walk Stopped: My Journey to find the balance between Stoploss/ProfitTarget


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A Random Walk Stopped: My Journey to find the balance between Stoploss/ProfitTarget

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  #11 (permalink)
 fctrader 
Fort Collins, Colorado
 
Experience: Intermediate
Platform: NT7
Trading: ES
 
Posts: 57 since Feb 2011
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Go Short at 7:39
Go Long at 14:13

ES has a wider stop (10) in AM
YM has a wider profit target (23) in AM

ES has narrow stop (4) in PM
YM has narrow profit target (9) in PM

---A quick notes... There is no mandate that we go both long and short each day. So far, the coin-flips have just worked out that way.

Happy trading to all today

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  #12 (permalink)
tomek001
Cumberland RI
 
 
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Thank you for taking time to conduct this exercise. I have seen similar work done in less "scientifc" manner, however, concept remains the same. I'm referring to woodies coin toss exercise. I will not reveal the results so you can stay free of any bias.

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  #13 (permalink)
 Big Mike 
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Can you clarify the time zone for the entries, is it EST?

Mike

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  #14 (permalink)
 fctrader 
Fort Collins, Colorado
 
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Go Long at 8:58 CST
Go Short at 14:05 CST

ES has a wider profit target (10) in AM
YM has a wider stop (23) in AM

ES has narrow profit target (4) in PM
YM has narrow stop (9) in PM

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  #15 (permalink)
 fctrader 
Fort Collins, Colorado
 
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Trading: ES
 
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Yesterday was a bad day for both stop methods, and demonstrated several predicatable results, especially if the market moves randomly.
The Results
(shown in attachment)

Narrow Target/Wide Stops - Total to date: + $13.20 / ct
.
+45.80 AM
-119.20 PM
see spreadsheet pic below for specific entries
The first trade was in and out of the market in less then a minute, playing against the trend, but due to tight profit target, it was filled anyway. The PM trade never saw daylight. It hit at an exact reversal (familiar looking) and just kept getting worse. Here, we see the drawback of the loose stop, as more than 90% of the prior profits were wiped out in one trade!


.
Wide Target/Narrow Stops - Total to date: -$36.80/ct

-$54.20 AM
-$54.20 PM
(see spreadsheet for entries)
Bad day all together for Narrow Stops. I suppose the lesson here, is to make sure that the system you trade this way has an edge. Of course, 2 days is too early to make any conclusions.
.

---Results are consistent with a random market for the first two days, with exactly opposite results from 4 trades made in the same direction. Tight Stops has lost 3/4, and tight targets has won 3/4. We'll see where today takes us.
---Mike, thank you for the comments. I hope that this can evolve to work out some details for me on stops. I plan to introduce your 3 car. trailing stop system later this month. I am also intending to change the entries from random, to having an "edge" at some point to see if the results are any different. The plan is to introduce a simple Over the Counter system like a moving average crossover, or perhaps one of the ones bundled with Multicharts. After that, if it is still interesting, I may introduce one of my one trading signals and see how it compares to random and OTC.
---As to the times... I have put them down in exchange time, CST. However, on my spreadsheet and code, they are listed as MST, since that is the time that I trade off of, and is what I have NT7 set to. If you have a preference; EST, GMT, MST..., I would be happy to modify the times listed.

.
Happy trading
.

---Question for Mike (or anyone who knows) The Edit tab is no longer there on the quick summary, so I don't have a way to update it. I'm not sure how to get it back. Any clues?

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  #16 (permalink)
 fctrader 
Fort Collins, Colorado
 
Experience: Intermediate
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---Narrow Profit Targets continue to do better in the Random entry test, posting an 83% win rate so far. However, yesterday's loss was dramatic, and a few of those could easily push it into the negatives.

---Narrow Stops has been stopped out on 5 out of 6 trades for a 17% win rate, demonstrating the need for a market edge with a simple stop strategy where the stops are tight. Next week, maybe we'll try widening both stops and targets to see if it helps, but my feeling is that it will just make the losses accumulate faster.
.
Narrow Target/Wide Stops - Total to date: + $99.80/ ct
.
+40.80 AM
+45.80 PM
.
Wide Target/Narrow Stops - Total to date: -$140.20/ct


-$54.20 AM
-$49.20 PM
(see spreadsheet and chart for entries and exits)
.
---So far, the random walk theory is looking much better than I had anticipated. However, as before, 3 days does not a theory prove. The obvious concern is the large hit that the portfolio takes when a position hits a wide stop. It reminds me of an options system that I read many years ago. The writer was a proponent of writing naked out of the money options, under the premise that, by measuring range against a standard deviation, you could assure yourself of 90% winners. Or 96%, etc... depending on the multiple of the StdDev. I believe many of his readers wiped out there savings with this method, since one loss on a massive move could easily take out all of your profits plus. The Govt. sanctioned and fined him, and made him put a standard risk disclosure on the package, but last time I checked, he was still selling his easy millions. At least with the random method with stops, the downside might be a little more managable. We'll see where it goes.


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  #17 (permalink)
 Big Mike 
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fctrader View Post
Question for Mike (or anyone who knows) The Edit tab is no longer there on the quick summary, so I don't have a way to update it. I'm not sure how to get it back. Any clues?

I will look into it.

Mike

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  #18 (permalink)
 Big Mike 
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Big Mike View Post
I will look into it.

Mike

Fixed. Don't change the title of the quick summary post during the edit. In meantime, I'll see if I can ask the developer to fix it permanently.

Mike

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  #19 (permalink)
 fctrader 
Fort Collins, Colorado
 
Experience: Intermediate
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Trading: ES
 
Posts: 57 since Feb 2011
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Go Long at 8:32 CST
Go Short at 14:07 CST

ES has a wider stop (10) in AM
YM has a wider profit target (23) in AM

ES has narrow stop (4) in PM
YM has narrow profit target (9) in PM

---Notes... Thanks, Mike, for fixing the summary, I will update.

Happy trading

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  #20 (permalink)
 Michael.H 
CA
 
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Im pretty confident that the wider profit target will show better results. But keep it up.

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Last Updated on March 10, 2011


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