Quote Originally Posted by Timothy Clontz View Post
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On an anecdotal level, I'd like to compare this with poker. Do you increase the bet when you get worse cards? Or do you fold quickly for a small loss and wait for a better hand? Winning players take the small loss and are grateful for the small loss.
Tim, you couldn’t provide a better analogy. The robot always fold quickly for a small loss and waits for a better hand.
Risk management is all about the position’s risk, not external headline and event risks.
The stop management will start with a tight stop at the beginning of a trade.
Then the initial stop will be fixed (not trailing) until a certain backtested profit threshold has accumulated in the trade on a daily close basis. From there, the stop will be trailed with a larger allowance for volatility than for the initial stop. That’s why a trailing stop is never lowered: it already takes into account a wide enough volatility tolerance after it becomes profitable and can allow for more wiggle room.
The robot excels in trend-following, but we haven’t had a sustained intermediate trend to follow for 7 months now. When trend-following will be back –and it will!- the volatility will contract on an ATR basis and the trailing stop will consequently become tighter and tighter to secure maximum accumulated profits.
In choppy ranging markets like now, the stop will often remain very tight because the profit threshold for trailing wider stops will seldom be reached.
The objective is not to get stopped out easily from trending positions and to take only minor losses in choppy markets.
Billy