%PROFIT %LOSS- when to use them?
10/12/2017 at 1:01 PM #49133
The PRT documentation describes %PROFIT as ‘Set a target profit x% from the average position price’ and %LOSS as ‘Set a stop loss x% from the average position price.’
My question is why would you want to do this? What sort of strategy benefits from Stop Loss and Take Profit levels that vary in size with price size? Why would you want say a 2 pip stop loss to increase to 4 pips just because the price has doubled? Range or volatility has not doubled just the price.
Maybe I’m missing something obvious but I’m struggling to think when I’d ever use them.10/12/2017 at 9:04 PM #49208
Check the monthly barchart on the us500 for the last 40 years. You will immediately see why a relative measure can outperform an absolute one over time,10/13/2017 at 2:49 PM #49297
Derek – that chart does make sense of a % based SL and TP up until about the end of 2002 – after that the jury is still out. An AverageTrueRange applied to the chart shows that ATR was rising as price rose up to 2002 but after that it was all over the shop. Sometimes price was falling and ATR was rising and sometimes ATR was rising while price was falling so a % based system would not be in tune with the market. The idea of % based SL and TP seems to make even less sense when applied to shorter time frames. I’m still struggling to be convinced of the benefits of % SL and TP for curent markets – now if I could just go back in time and place some trades pre 2002 I’d be a millionaire!10/13/2017 at 8:23 PM #49320
This is a good question. Percentage is a usual scale used to measure price behavior in stock markets, so why not use it too to set target and stop?10/13/2017 at 9:05 PM #49327
Thanks for your reply Nicolas. I agree that percentage SL and TP would be a great way to adjust SL and TP levels but from what I have seen so far market volatility does not pay any attention to market price so 3% SL or TP in a market that is going through a slow moving period is very different to a fast moving market that can move 3% in the blink of an eye. Neither market cares what the actual price is that the percentage is based on. So I’m still struggling to work out where to use a percentage based SL or TP.10/14/2017 at 8:01 AM #49342
Yes, but you don’t have to set a fixed percentage that still for months too. You could also make your own calculation running each new bar that could use Average Daily Range or whatever ..10/14/2017 at 4:56 PM #49372
Yes Nicolas you have described exactly the thought process that I have been going through. Fixed SL and TP make no sense in a market where volatility and average range change continuously. A fixed % makes no sense for the same reason. So maybe the answer is an ATR based % SL and TP. Tuning out any major spikes from black swan moments and major news while still remaining fast enough tto be relevant to current volatility is the challenge. Do you have any examples of strategies or any code showing this in use?10/15/2017 at 5:43 PM #49429
using the ATR to determine a target and a stop is rather common, you will undoubtedly find many examples in the library or in topics! 😉10/15/2017 at 7:37 PM #49438
ATR based stop loss and take profit is simple to code but I was hoping someone may have come up with a blend of ATR and a % of price. I’ve been dabbling all day on this but have yet to come up with a viable answer. Everything works great up until computers began to be used for trading and then it all goes wrong!10/15/2017 at 8:57 PM #49441
When I thought about automated trading I did some calculation before to find how a % based SL and TP must be defined to work. On daily base (min. 1.6%) and expressed in EURO that was just too much I was willing to risk – and I am simply not made for longterm trades. For midterm I found somewhere (forgot where that was) a statement, that a 2.5 ATR is seldom caught with retracements, so that would be intraday. For very shortterm as I trade, I use fixed points for this reason: IF I enter a trade I do expect the price immediately heading off my direction (if it does a fixed SL is enough, if it does not that means my assessment was wrong and I am not willing to pay more than neccessary for it).
So to my mind it depends on the timeframe how you would best calculate SL and TP. Just my 2c.10/16/2017 at 12:23 PM #49549
Bear in mind that %PROFIT and %LOSS are calculated for the average positions with PRT software while it is set individually with PRT-CFD/IG (just a reminder).10/17/2017 at 5:34 PM #49708