Jim Dean Elite   Posts: 1059 Joined: 10/11/2012 Location: L'ville, GA  User Profile | Hi, Mark As you know, I've done a pretty massive amount of development work on different types of stops over the last 15 years or so. I think they are, in general, more important to "get right" and "apply intelligently" than getting the "perfect entry" is. JMHO, but I'm not alone. Without providing a loooong discussion about whys and wherefores, let me just state that I have *never* found that price-percentage based stops are optimal ... there always are better approaches (simple and complex) My "simple" recommendation is that ATR-multiple based stops are nearly always better than percentage based stops, except maybe for long term (multiple months) trading. So, I'd suggest you rework your evaluation using atr multiples for stops, rather than percentages. Obvious questions is "what multiple". Common-sense answer is that the multiple should be in "safe" proportion to the anticipated profit (ie consider Reward vs Risk). If profitable trades average, say, 2 ATRs, then the stoploss certainly shouldn't be more than 2 ATR. Also, the logic of the stop needs to be designed with the entry logic and typical progress of the trade in mind. Nirvana's approach to RTM's, by my observation, usually attempts to enter while the pullback is still occuring, rather than after it reverses. That means a lot of "faith" is needed when entering the trade, that the pullback is not actually a reversal. So, ye of "little" faith, if you want to "demand" that the pullback ends immediately after entry, and protect yourself from true reversals, use a fairly tight stop at first, then maybe loosen it after the reversal. That is, consider the low of the entry bar, maybe the LLV(3), as a "pivot point" that if not validated by an immediate reversal, should be the threshold for immediate exit. OTOH, ye of "much" faith (in N's strategy), you'll presume that an overwhelming majority of the entries will result in profitable resumption of the trend after a couple of bars, even if the wait time gets a bit iffy. In that case, do the reverse ... use a fairly wide ATR multiple for the first couple of bars but then seriously tighten it after the resumption occurs. Final statement ... as you've repeatedly and correctly mentioned, Mark, there is an unavoidable positive bias to the Excel testing you're doing since presumably there is *some* degree of curve-fitting in the strategy out of the box. So, use the statistics with care regarding the "little vs much faith" alternatives mentioned above. Hope this gives you some things to consider, maybe a bit more grist for the mill. | |
