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AKA... the longer you trade the larger the chance you'll see a larger drawdown then ever before. (Think LTCM) I think they STILL claim it couldn't happen in many many lifetimes)
Umm. I'm not sure about that. The original poster claims he uses ATR profit targets within volatility and 50 point stops.
It broke off into a discussion about a universally good R/R.
My beliefs about that are just like TWDsje said earlier. Sure there is but WHAT ARE THE CONSTRAINTS? Type your parameters into your backtesting engine and it'll spit it out. Then do it over many many. Like probably thousands of iterations of those parameters and average over all of them. Again its just a number. An average.
What does that mean. Nothing other than thats what happend in the past.
Lol. I just had to jump in here. You really left yourself open here. In trading terms. You must have big poops (drawdowns) to need 5 ply. Also 5 ply must be expensive for a business (commissions?) or (big stop losses).
I mean no disrespect. Just being funny. I 100% get your point about testing with and without a stoploss. I believe I understand why as well. Correct me if I'm wrong.
You have to test without a stop loss as if your strategy gets an 44 percent win rate WITHOUT the stoploss how do you expect it to work with one.
On the other hand if you get a 80% winrate without a stoploss then you obviously have a profitable system. Then you add a catastrophic stop loss for emergencies.
I agree with you up to and until it goes passed testing. I think its a good exercise like examining your MFE/MAE.
But on the other hand if it works for you thats ALL THAT MATTERS!
The longer term the trades have, the higher the benefit / risk ratio should be, and vice versa.
There will be a trade length where the ratio will be 1/1, but this may be less.
For example; scalping, it seems logical to accept ratios less than one, as long as the reliability is high enough.
Another different thing is whether that relationship should be an operational objective or a measure of whether our operation is valid, whether it is worth it.
"But a good mean reversion strategy that is found with out stops can be made more desirable with lower risk of high MAEs Especially when dealing in a market with higher IV. There are ways to do this. Not full fixes, but certainly tradeable fixes."
...ABSOLUTELY AGREE. This is the exception as it makes sense... in a mean reverting market.
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Agree. I was (am) going to say the same.
If you subscribe to the market makers trigger stops school of thought, that's easy to avoid. Don't use conventional stop AMOUNTS. I'm sure there are a lot of stops 5 ticks, and/or $1000 and $2000 above and below the daily opening price. Nobody is looking for a stop $789 below the open!
Reduce a 'few minutes' to 'seconds' or even 'micro-seconds' and you are High Frequency Trader. I gather that's a decent business to be in.
+1. Definitely holds true for me.
While I do agree with your point I think LTCM is a bad example. Firstly a large chunk of their losses were due to 'strategy creep' but their complete collapse was a result of Wall Street feeding upon one of their own.
Agreed. That was a stretch. I think was trying to make a point but the point is ONLY that... the longer you trade the more likely you'll see a black swan event. And/or your largest drawdown.
Yeah I can attest to the random entry theory. I used to do that to applicants that wanted to work on the trading desk.
You need both, entries and exits, to be really good over the long run. Maybe it could be said that the two items that are in your control are when you enter a trade and how much you will lose?
I say it often that risk is the number one consideration, meaning "first" thought and most vital.
Over your chosen time frame everything has a range to put in. What do I expect from this? Is it against trend or a reversal...then I'm out immediately if I'm wrong. Once I've achieved a reasonable piece of the anticipated range, do I want to press this trade and look one time frame up?
The fear/greed thing is something that most people get wrong, imo.