Initial Stops

[skinner36]

I have been analysing my paper trades to date and notice that 25% of my exits are from initial stops.

Is this an acceptible percentage or wouild you consider it too high? What would be considered an acceptible value?

Thanks in advance,

John

 

[tech/a]

Ive done some work on intial stops.

Firstly these results are based upon trades being taken within the current direction of trend IE price is above a 40 day ema..

Stops are normally placed at a technical level so when evaluating the following you'll just have a look at the % from the BUY PRICE and see where you fit.

This was a fairly long study but by no means exhaustive so you may find different resluts. In fact if you take the time to analyse your trades I'd be interested in your results.

So from the initial buy price stops at
1-3% of the buy price had the highest Stop out rate of 30-55%
3-5% of the buy price Not a great deal of change 25-45%
5-10% of the buy price 12-25%
10-20% of the buy price 6-12%.

I found the ideal to be between 8-12%.
Any lower and you are stopped out to quickly in noise.
At the higher levels you run into the trap of being kept in a trade which has a 15-20% range---basically doing nothing.

This is with EOD data.
Id be interested to see Weekly but suspect that tighter % stops would be more successful and lower timeframes wider stops would be required.

Hope this helps.

 

[MichaelD]

I have been analysing my paper trades to date and notice that 25% of my exits are from initial stops.

Is this an acceptible percentage or wouild you consider it too high? What would be considered an acceptible value?

1. There is no perfect stop.
2. So long as you are happy to continue to follow your rules and you have a positive expectancy - what does it matter that 25% of trades get initial stopped out? What's more important - the journey or the destination?

Having said that, my observations on initial stops;
1. The tighter the initial stop, the more likely you are to be prematurely stopped out.
2. Converse to that, the less you will lose each time you are whipsawed, so the less damage it does to your trading capital and the more likely a trade is to declare itself a loser sooner.
3. And again conversely, the more you are whipsawed, the more you pay in transaction costs.

Personally, I simply use a trailing stop and leave it at that. The benefit of a tight initial stop is IMO too marginal to bother with.

 

[Timmy]

Skinner - not enough info. What happens to the other 75% of your trades? If they are all hitting your profit target and you have a good RR then there is no problem?