number of trades different with stop change

January 18th, 2013, 07:04 PM

Why does the stop loss affect the number of trades for a strategy? I do not understand.

I setup the following strategy (Not recommending. This is for demonstration. )

If MACD is over 0 and ADX is over 25: Enter a long position for 1 contract
Stop loss 4 ticks Profit 4 ticks
Ran on 30 minute ES chart for 1 year using the strategy performance/ historical data.

Result 1975 trades lost $22,462 * So do not follow this strategy

But then I modified the strategy by changing the stop loss to 8 Ticks.
That was the only change I made.

Result 1448 Trades lost $17,050

I can understand how this would lose a little less money. But why are there over 500 fewer trades. The stop loss has nothing to do with the entries. And that is the only change I made to the strategy.

Can anyone explain this? Thank you

January 18th, 2013, 07:16 PM

Thats quite simple, if you have only one position open at once. With an larger stop you are staying longer in trades and therefore you are skipping some potential entries. You have to visualize the trades in the chart and compare the 2 variants.

mcteague

Why does the stop loss affect the number of trades for a strategy? I do not understand.

I setup the following strategy (Not recommending. This is for demonstration. )

If MACD is over 0 and ADX is over 25: Enter a long position for 1 contract
Stop loss 4 ticks Profit 4 ticks
Ran on 30 minute ES chart for 1 year using the strategy performance/ historical data.

Result 1975 trades lost $22,462 * So do not follow this strategy

But then I modified the strategy by changing the stop loss to 8 Ticks.
That was the only change I made.

Result 1448 Trades lost $17,050

I can understand how this would lose a little less money. But why are there over 500 fewer trades. The stop loss has nothing to do with the entries. And that is the only change I made to the strategy.

Can anyone explain this? Thank you

January 18th, 2013, 07:32 PM

You get full points for this answer. I just had not thought of that.
Thank you.

It makes me wonder though about what my testing procedure should be.
I try to put what I am doing manually in scripts to test whether it makes sense.
Although I may also run some auto trading strategies eventually. And although I do not always use stops for my exits. I do test them for scripted trading.

I just wonder what the best accepted testing procedure is to see what actually makes money or not.

Anyway thanks for the repy

kevinkdog · January 18th, 2013, 08:00 PM

One way to test the entries is to exit after x number of bars, and eliminate the stop loss. This could show you the effectiveness of the entry, and how it varies with the number of bars after it occurs. But even then, you'll likely have some overlap in signals, leading to "missed" trades.

number of trades different with stop change

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number of trades different with stop change