MoneyTec Traders Community Forum - View Single Post - Optimal Stop-Loss and Take-Profit Levels

anomaly · 25-10-2004, 15:07

dacoffey--
I'm very interested in this topic as well. I have backtested many systems with exit strategies similar to what you're testing on your system right now.

I would agree with bubo in that I was not able to find one optimal stoploss/takeprofit level for all currency pairs. In reality, they varied greatly. With one system, I was able to get stops as tight as 15 pips on the EUR/JPY (great entry timing), but could never get anything closer than 30 on the GBP/USD. Some crosses simply have different noise levels.

The conclusion that I came to after testing these systems extensively (over 8 months of historical data) is that I was trying to overoptimize my exits. Unless you have a strategy that provides you with specific exit points (like Elliott Wave or retracement systems), it's very difficult to project the strength of a move. When you overoptimize your exits, you're trying to do just that--determine the most frequent (optimal) levels of market strength.

I think this is a good discussion, though, and I'm happy to find someone else that is systematically testing his theories in the same sort of ways.

25-10-2004, 15:07	#8
anomaly level 1 Join Date: Aug 2004 Posts: 7 Downloads: 0 Uploads: 0 Rep Power: 0	Overoptimizing dacoffey-- I'm very interested in this topic as well. I have backtested many systems with exit strategies similar to what you're testing on your system right now. I would agree with bubo in that I was not able to find one optimal stoploss/takeprofit level for all currency pairs. In reality, they varied greatly. With one system, I was able to get stops as tight as 15 pips on the EUR/JPY (great entry timing), but could never get anything closer than 30 on the GBP/USD. Some crosses simply have different noise levels. The conclusion that I came to after testing these systems extensively (over 8 months of historical data) is that I was trying to overoptimize my exits. Unless you have a strategy that provides you with specific exit points (like Elliott Wave or retracement systems), it's very difficult to project the strength of a move. When you overoptimize your exits, you're trying to do just that--determine the most frequent (optimal) levels of market strength. I think this is a good discussion, though, and I'm happy to find someone else that is systematically testing his theories in the same sort of ways.