I have been with C2 since last summer and I struggle with when or if to place stops on trades. I have seen some trades be as high as $3000 profit like with Antares SP500 and then go to a negative $1000 and end up selling for a loss. On the other hand with the same strategy I have seen his trades go well over $1000 negative and come back to a nice profit. I just have a hard time accepting when we have such huge profits and then in 2-3 days they all go by the wayside without the developer taking advantage while it was green. I understand there no body has a crystal ball but I would like to hear your thoughts on how you manage stops or do you? I have had the same thing happen with other strategy’s Antares SP500 is just an example. I have had this happen with TOS and non TOS systems so that seems to not make a difference. Thanks as always for sharing and teaching me.
In the context of following systems, it’s better to let the developer handle it. If the developer does not place hard stops at all, I would not follow the system. There must be a protective stop, even if the exit is done by other conditions.
In the context of what’s right or wrong in trading in general - the answer depends on the type of system. A perfect system will not give up open profits, but we are dealing with realities, not with fantasies.
Once you have properly tested a system, the best advice is not to follow the trades when they take place (assuming stable automation of course). The temptation to close a trade too early and increase the win rate can turn a profitable system to a losing one.
It is said that successful trading involves (a) preserving capital PC and (b) protecting profits PP.
PC is taken care by using stop losses. PP by Take Profit TP exits.
One way to PP is to enter with 2 units and sell half at 1:1 risk-reward.
OP, you think if you manage stop and trades yourself, you can do better than your developer.
You can try to do this: every time you think you should take profit, remember it, and every time you think you should place a stop loss, remember it.And just as if you have done what you want to do, after a period, compare what you are supposed to do, with the performance your developer did, see which one is better.
I guess you will make things worse.
This is not a problem that only OP has, many subscribers have the same problem.
The developer did not take a huge profit, and turn that profit into a loss.
Why he did this? Because he expected more profit ahead.
3 out of 10 times, he turn profit into loss. The other 7 times, he make huge additional profit.
So for the 10 times total, he will do better than as if you do it.
Why I say this? Because his strategy has good performance, and that’s why you choose him.
Some great in site from all. Thanks very much wmwmw for what you said makes a lot of sense.
Easy way to estimate position stop loss is to download and import trades data into excel and simulate equivalent system performance. Lets say your stop is X$, then all the trades with $ drawdown larger then X$ will be closed with the loss of X$. Then sum up new results, obtain new dd and compare with the original system.
You may be not see better profits, but profit to dd ratio can be better.
Hi Gregg and all,
Thanks for your feedback on this, let me try to explain my view.
Mechanical strategy are based on statistical analysis revealing some sort of inefficiency or “edge” for the observed market, based on historical data.
The vast majority of automated strategy had and will have periods when the statistical edge observed in historical data did not work as expected and the strategy underperforms past results. Hopefully, (but no one has the crystal ball, as you wrote Gregg), strategy adapts and/or the market returns “in sync” with it, and performances improve. I trust my strategy will stay profitable and strive for that, but cannot of course guarantee nothing in this regard.
Markets structure is dynamic and ever changing, making almost impossible to design a trading strategy that gives high returns with little or no drawdown for many years.
Coming specifically to my strategy Antares SP500, it adopts hard stops and profit target for every position.
A pre-defined maximum daily loss check is coded into the strategy and will exit all positions when hit, preventing also the strategy from entering the market the next day. In case of high price volatility, a sell-at-close protective exit activates, exiting all positions at the close.
Strategy has 3 set-ups: contrarian, intermarket and pattern. Contrarian set-up has the wider stop, while intermarket and pattern adopt a trailing stop limiting the downside to 500-1000$ per contracts.
Since trading begins here on C2, Antares SP500 had a nice run-up, yielding about 31000$ at 1x in ten months. From December 19, 2016 when you subscribed the profit was less enticing than previous months, up about 3000$ (C2 data). Low market volatility during this period did not help, as strategy set-ups tend to work better in presence of wide market swings.
I understand it has been frustrating going through this period seeing in one occasion a nice profit of about 3000$ go negative. I saw the position was highly in green but did not cash-in the profit because my commitment is to develop and improve the code, limiting myself to monitor strategy execution without manual intervention, except in case of financial or geopolitical disasters suggesting better not to participate in derivative markets (thinking here about events like Lehman Brothers, Fukushima or 9/11 ).
The position you refer was generated by intermarket set-up, which has a relatively tight stop loss and large profit target, generating high risk/reward ratio but low win/loss.
Having said that, since contrarian set-up now places target orders the day after it enters the market and had no intraday entry logic, I am developing and testing an intraday code that added to present strategy logic will manage intraday entries and exits. The new logic will delay entries in case of market dropping too fast, until stabilization clues manifest, while monitoring positions the day it enters the market, in order to take profit based on multiple average-trade value.
Hoping to have cleared some doubts, I am always available for info and clarification.
“Once you have properly tested a system, the best advice is not to follow the trades when they take place”
I think you mean : …the best advice is to follow the trades when they take place. Otherwise I don’t understand your point.
I completely agree with your final statement :
The temptation to close a trade too early and increase the win rate can turn a profitable system to a losing one.
Yes, I realize I used the word “follow” in an ambiguous way here. What I meant is that yes, you should take the trades, but not sit and watch them. Just let them get executed, without staring at the P/L figures, without continuously checking how close or how far the price is from the stop or target.
The only problem with this approach is that you lose double when your stop is hit first.