I was reading through a post on stops earlier and a few interesting things caught my eye. Specifically, this post:
"I've done lots of tests on stops. On the tests for stops with a loss I found little difference in overall profits based on where a stop was placed. With tighter stops the percent of winners dropped but the winners made way more money than the losers. With looser stops the percent of winners went up but the total win/loss ratio decreased so the overall profits were the same. I've found it much more profitable to spend my time on the stops for profit and I think it's a big difference between ok and better traders.
One area of research you might want to check is entry size. If you don't do all in at once it can have a big difference in your trading.
I found if I go in partially initially, and then after a fixed period adding more if the position is profitable, the overall profits went up, the time between equity highs went down, the drawdown increased, and the sharpe ratio went down. If I did partial entry at first and then adding if the stop hasn't been hit, but the position is underwater then adding to the position gave lower overall profits, higher time between equity highs, lower drawdowns, and increased sharpe ratio."
Lately, I have been more focused on improving my trading, and an area I think I could improve upon is getting more out of my winning trades. Then I figured that this is an area we all could do improve in, and the focus of this thread.
As I see it there are two ways to improve the way we trade our winners:
1. What is the optimal frequency and/or strategy for
adding to winning positions?
2. What is the best overall stop strategy once you are in
I look forward to your posts, and good trading to all!
P.S. I will be posting my research and strategy a little later in the week.
I read Jesse Livermore book once and he always added to winners, thus his losers were small, and winners big. But he used higher highs and higher lows when buying, and added on specific breakouts. Thus, if he was wrong on adding, he figured he was wrong or ready to get out completely. eg. stock makes a "lower low". In this way he would exit his entire position.
This seems like the best strategy to me. It is more active, and requires more analysis.