For years I've struggled over knowing what best stoploss method to use. I have one on Amibroker which I had coded, had it for years, it's a percentage trailing stop system, but it is clunky. Difficult to code, restricted to Amibroker, a bit complex and time consuming in its application. I mentor a couple of people and I must say, my entry system I'm very happy with but a good exit system - well, a bit embarrassing really. So anyhow I created some notes on various styles of stoploss but never answered the question - "What is an ideal system? So once again was forced to ponder the question and and with a stroke of luck came up with what I think is about the most user friendly practical and workable method. Can be used on charts or data with minimal coding, it's the old old story, 'If you don't know it is hard, once you know it is easy'. How many traders are there who struggle with this issue? Nobody wants to supply their secret sauce entry method, but what about an exit system? Does revealing this create me as a trader issues? Is there any merit in selling such a method?
Look at it a different way: "how many traders would benefit from improving their exits?" If your system captures just one extra tick per day, it could make a very large difference, to pretty well anyone. Try beta-testing it, with a reasonably-sized sample of traders that you can trust not to spread it without your permission (I don't know if you have a group of trading friends, but it's a thought.) If it works for them as well as you, you'll have a choice of being a famous benefactor and patron saint of the trading world - or maybe becoming rich (assuming you can scale the marketing hurdle, in a world of us super-cynical bastards. ) Best of luck, and I hope it proves out to be as beneficial as you expect.
This one is End of Day, not intraday, Stocks and Indexes, possibly could be used on fx, I had a a bit of a look at DX, but fx I avoid due to its volatility swings, so will rule out fx for the meantime.
No, because there's no such thing as best exit. Many times it's best to never exit. Many people use entry signal in the opposite direction of your current position to exit. Sell your entries instead
This exit system is as good as it gets imo. A good exit system is better than a poor one or none. Buy and hold is not good, it creates too much uncertainty. A good exit system means you can relax because if you only had 30% winners for example, you don't then have 70% of losers pulling your portfolio returns downhill. Selling my Entry System - not a good idea imo, it suits personality types, guys with lots of patience, it would not suit most people as it can be a long wait between trades and there is a discretionary element to it, I would be inundated with complaints. The exit system has clean rules and code, very hard to get it wrong, totally systematic.
Most trend following systems use the ATR multiplied by multiples of it. The larger the multiple, the larger the stop loss. Hedge funds use those and their exits vary only by the multiples they use. ATR stop losses are wide as it is so, multiples of it would make it even wider. If it is good enough for the hedge funds who do well in the stockmarket, it probably, will work for the retail investors. Of course their time frame is measured in years or until the stop loss is hit, whenever that occurs!
ATR has its shortcomings, like MA's, the period you use is like throwing darts, hit & miss, as well, ATR is something which requires an indicator as such to recognise, eg, if you told me about your ATR stop loss method, you and I could only guess where that stop level was without looking at your indicator which you had coded to periods you guessed at. As ATR levels change, your stops are moving both up or down. Too complicated - too discretionary on which period you are choosing. Volatilty like volume is a poor indicator.
I have 3 criteria for stop loss. 1. Time - if the stock didn't reach a certain price in a certain days, exit. 2. Technical - break a trend line, trailing stop etc 3. Price - hit a certain price target. This target price is based the % price change distribution.
No exit strategy is perfect. You have to give up something as you cannot have your cake and eat it too! Selling while, it is rising or at the top? Pretty hard to do but, in theory, you would want to sell at the top for maximum gains. Stop losses, you are giving profits back because the stop loss gets hit only on the pullbacks or rallies if you are short the stock.
- there is no such thing as a perfect stop... because it's self defeating... when a certain method works well, people find out and crowd it and they become vulnerable to stop runs. - price based the stop is the most inferior method. time/event based is better.... if you stop out on price you are already ways off the best exit.. trade on events - e.g. enter 2 weeks before the Fed cut/ earning release/ trade deal signing... exit on the news.... that's how my pro boys suck in the dumb money and dump the shares and you should do the same. - back test trend follow strategy you will find the best stop is no stop lol.. buy more on weakness, 12.5% annual on the qqq plus additional buys on weakness is an unbeatable strategy... not just me saying it... look it up, virtually zero managers can beat this.. (except the very very few HFT type that find some edge that is unattainable by us small retail guys).