Optimal Stop-Loss and Take-Profit Levels

[Gamma_Jammer]

Anomaly - I think we're slightly at cross purposes here. I basically agree with you re. letting your profits run. I've come to the conclusion that the way to make some decent money is to catch the decent moves. I just don't think that optimising a system to death in order to catch exact tops and bottoms is the best way to trade. I'm not talking about trying to take the easiest 10 pips of a 150 point move, but neither am I talking about trying to squeeze 145 of them.

I just think there's a happy medium to be had somewhere that will allow you to develop a system that isn't too hard on the emotions, and that will give longer term signals than would typically be employed by the average 'scalper'. Not that I have anything against scalping per se, just that for me personally I can't see ever that being how I want to operate.

[anomaly]

GJ--
I must have misinterpreted your earlier post, then. I agree that it's counter-productive to try to identify tops and bottoms. However, I do agree with Alexander Elder, who grades all trades by the percentage taken. If you take 60 pips off a 100 pip run, your grade would be 60%. You should always aim to increase your percentages.

As for trading strategies that aren't too hard on the emotions, we may disagree. I always want my emotions to be the weak point of my trading systems. If learning to think another way is the only thing standing between me and the holy grail, that's an ideal scenario. My thoughts are the only thing in this universe that I know I can control. =)

[Gamma_Jammer]

Well on your last point there's no right or wrong answer, just whatever works best for the individual. But for me I also try to recognise the fact that there are only so many trading hours in the day, and I want to be applying my system across 6-8 currency pairs (on the assumption that there will always be a chance of a good signal in one of them).

So factoring in time, if for example I could grab 60% of a move with a 1 hour position and 75% of a move with a 4 hour position, I'd personally be inclined to take the 60% and move on. Not only are you free to do something else, but in the (admittedly a bit extreme) example I've chosen, it's pretty obvious that there's been a change in momentum and if you're trading retail fx (as opposed to sitting in a bank with the extra info flow that entails), that sort of thing makes me more inclined to take the money and run. I'm looking for trades where, when they work, I fully understand WHY. And for me that usually equates to trading on breaks of key tech levels and trying to go with the large interbank stops and orders generated by hedge funds.

Well it sounds great in theory :-)

[wozdan]

Hi,

Dacoffey, I think you have overlooked an important issue. Moves are of diffrent magnitude (in pips) on diffrent pairs, becasue the absolute levels of exchange rates are diffrent (EURUSD is 1.2 and GBPUSD is 1.8). If you measure TP and SL in pips you have to have specific rules for each pair.

I have a simple 4h/1h support/ressistance system that I tested live (one eurusd and usdchf) for some time with diffrent TP and SL levels and the best results where on the

EURUSD: tp 50, sl 35 (coincidence?
USDCHF: to 100, sl 50

Sometimes my system makes me leave 100 pips on the table, but overal the gratest profitability is when tp is 50

cheers and good luck

[dacoffey]

wozdan: Excellent point...I will begin testing using relative percentages.

[Gamma_Jammer]

Very good point Wozdan, but interestingly, the 2 examples you have given (eur/usd and usd/chf) both have similar 'big figures' (given no change in EUR/CHF, they would both converge at around 1.2380 if the greenback turned).

And yet you have found optimum results for your system using very different parameters for the two pairs.

So while you are of course right about the need to optimise for specific pairs, it would never be as simple as mutiplying by 1.5 (1.8/1.2) to give cable values based on eurusd ones for example.

This is largely to do with structural differences in the different currency pairs. Liquidity, dealing conventions etc.

[wozdan]

gamma,

you are right of course, it is not as simple as multiplying (due to action on crosses), but generally one can expect the moves will be bigger, it is best shown on gbpusd

cheers