Life Without Stops, 02/15/10

Life Without Stops

Trading systems are often built/viewed/optimized in terms of reward with stops thrown in as a nod to risk control. Here's a system that doesn't use stops but uses a combination of other risk controls (volatility, a pause before entering, the presence of drift in the direction of the trade and nearness of an n day low or high) instead of stops. The end results are noticeably better for the system without stops. The results are for 1997-present.

With stops:

With other Risk Controls instead of stops:

In the above example, the largest losing trade was 1.5 times greater and the average losing trade 1.2 times greater in the version that used stops as the only risk control.

Conclusion: Using multiple forms of risk control can improve the results of individual systems and add robustness to groups of systems.

Henry Carstens
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