Stop Loss Only - Page 2

1. ## Stop Loss Only

Hello all my fellow, this time I want to build a strategy, it is purely on the basis of the inspiration that I got from a content thread created by Value trader. But I forgot which thread is.

I take an example: we made ​​10 trades, if 9 trades is ending with loss, Are impossible for us to change it into profit? As far as we still have a chance, we can still change the situation into profit. It is depends on our method in managing risk. If we put a stop loss 10 pips/ each trades, and take protit 100 pips. So the end result is, total loss + Total Profit = (9 * -10) + (1 * 100) = 10 pips profit.

Compare the contrary, for example, we are a scalper, we take profit of 10 pips for each trade, and put a 100 pips stop loss. If we get 9 win trades of 10 transactions. Then the end of the results is: (1*-100) + (9*10) = -10 pips (loss).

This is evidence that a high level of accuracy in the analysis is not a guarantee for profitable if we can not manage risk properly, in other words, is not able to set the ratio of risk: reward properly. 90% accuracy in analysis isn't mean profitable, and 10% accuracy in analysis isn't mean unprofitable.

Okay, that is a simple logic of the system that I will build.

Even so, I will start from zero, I will do a backtest for a few months back, or more than a year back, and then I will do a forward test.
For a back test, I would not use the analysis at all, I just want to know the worst of this system, I just rely on the game of risk: reward ratio.
Of course I would compare of 5 methods. So I will know which one is best, and what weaknesses and strengths of this system.

It is my plan to build this system:
1. Doing backtest in EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/JPY, USD/CHF, USD/CAD, and EUR/JPY.
I would compare 5 methods of risk: reward ratio:
- Stop Loss 25 pips : Take Profit unset. or trade using stop loss only, no take profit. But close all profit positions in the last week or last month.(My system)
- Stop Loss unset : Take Profit 25 pips. or trade using take profit only, no stop loss, But close all loss positions in the last week or last month.
- Stop Loss 25 pips : Take Profit 25 pips. or trade with 1:1 Risk Reward ratio
- Stop Loss 25 pips : Take Profit 50 pips. or trade with 1:2 Risk Reward ratio
- Stop Loss 50 pips : Take profit 25 pips. or trade with 2:1 RIsk Reward ratio.
In the back test, I would just use grid trading, (using robots), so I'm not going to use market analysis.
I use buy stop and sell stop orders, the distance of each order is 25 pips. I do not use order limit, just order stop. And the distance of the nearest pending order to the current price is 25 pips. And will always add new pending order if the price move 25 pips or more.
Just see the picture...

2. Doing forward test. Here I will determine the appropriate analysis strategies, and then do some testing, maybe I can change the method of analysis if I am still getting unsatisfactory results. Then If I've got a good and profitable system, then I will make a thread for this system, this is my journey in building strategy. A system with use stop loss only.

Thank you

2. Result of October 2011

Market condition in October 2011 (daily chart)

Max DD (equity)

Result

3. I understand this quite find now, it is a rule of the management of the trader. If the trader is very good in a system he is trading with, it will give better results. But I think that it is better that the loss is not up to 10. If the consecutive losses of the trader is limited to about 3 in a row, the success will be shaper.

4. Backtest (November 2011)

Daily chart condition

Max equity drawdown

Result

5. Originally Posted by cozard007
I understand this quite find now, it is a rule of the management of the trader. If the trader is very good in a system he is trading with, it will give better results. But I think that it is better that the loss is not up to 10. If the consecutive losses of the trader is limited to about 3 in a row, the success will be shaper.
Yes dear, good idea, I guess I have to minimize the loss to no more than 3 in a row, I am still in the back test, this may require a long process, and I need a good idea as you give. It could be a very valuable input for the quality of the strategy that I will build up. I hope this can generate a good strategy.

6. Backtest (December 2011)

Max equity drawdown

Result

7. Originally Posted by rinaji
Yes dear, good idea, I guess I have to minimize the loss to no more than 3 in a row, I am still in the back test, this may require a long process, and I need a good idea as you give. It could be a very valuable input for the quality of the strategy that I will build up. I hope this can generate a good strategy.
Sure, it require a long term process, I am glad you are back testing this, but what I am not sure about is the back test you said. Or you mean forward test it, because how could you back test a stop loss way of management? Except you are working with an EA that is suggesting what it would have doe in the past. Shed ore light on this.

8. Backtest (January 2012)

daiy chart

max equity drawdown

result

9. Again..., I try to applied grid system in a real account, I trade only buy according to the simple analysis, I just identify from weekly Candestick, I think this is a good signal for a pullback (bullish).

Quite creepy.

And the result is like this, win trades is a lot more than loss trades, while in the backtest I get loss trades is a lot more than win trades. Because it does not use analysis, it is my intention in building this system, if I can profit consistently without analysis in the backtest, then later I will get more profit or powerful results in real trading using the analysis.

10. Its best if you add volume and macd. Its can help to determine is the trend is strong enough to sustain itself. Because if you just do follow trends and patterns you can get up having a false breakout. Just like what happen to aud/usd. I am happy that I position myself in sell when it reach .8900 and I earn 100 pips in just one day. I am happy to earn 100 dollars in just one day right now.

11. Maybe there are jpy high impact news at this morning...