Rule-Based Trading Systems

[capt_jmj]

Stops are truly a love/hate relationship, but unfortunately you never know which until after the fact. Our testing with Merlin shows that the most effective approach is one that allows the stops to "breathe" around a base value as a function of volatility, the idea being that in highly volatile markets you need to give the stops a little more room to accommodate the thrashing around. Also, the optimal base values will migrate quite a bit as the market's trading character evolves. Of course there are stops other than Loss, such as Profit, Gap, Trend Equity, and OS/OB extremes, and each has its place in a well-designed, comprehensive, integrated strategy, and each contributes to an effective money management approach which maximizes the bottom line over time.