Did you experiment with multiples of your stop(s) as well...? Seems ATR is an endlessly moving target, unless based on a very long period, in which case it can lag... Ultimately the smaller the multiple the "safer" the exits..
Hi TJ, I mostly trade off of daily charts, trying to catch short-term trends that last a few days to a few weeks. I note the current 10-period ATR when I get an entry signal and place a stop entry order, an initial stop-loss order and a limit target order to exit half the position all at the same time. All of them are placed based on fractions or multiples of the ATR. The final half of the position is a runner that has a trailing stop loss which tries to catch the larger moves. Before this, my trades had always been all-in and then all-out, but the new approach has worked much better.
Hi Rashid, See the response to TJ above. You're right, I should have said "fractions" as well as "multiples" of the ATR. I've found that in several markets I can set the initial stop-loss at 70-80% of the current 10 period ATR and it only gets hit ~ 10-20% of the time for a full stop out. I've done a lot of backtesting and was surprised a bit with the consistency across different futures markets. I still lose on ~ 40% of my trades, but over half of the losses are for less than a full stop-out because I trail the stop-loss and also exit half the contracts when a gain of 60-100% of the ATR is reached, depending on the system I'm using (again, in reference only to the 10 period ATR as it was on the day of the signal bar). I guess it sounds weird, but it has worked very well.
The trader should view it this way; because of the fact that anything can and does happen. In other words, no trade can be made with 100% certainty that it will be a winner. Yet, one has to learn to make sense of the chaos. This is where the work and time come into play.
I'm a psychiatrist, you see! Relax, position yourself upon my enormous black leather recliner... Are you comfortable? I'll be probing deep within you...
TJ is incorrect (this is NOT an opinion). If a scientist knows he is researching a finite system, then he knows the role of certainty, in a finite system. Certainty, plays a role. Civil engineeering deals with structures and sets of equations. Sometimes the work is orney. But structures do get built. As a consequence all my trades (reversals in form) are certain and they are certain BEFORE the event comes to pass during intraday trading. What allows for this kind of continuing circumstance? Certainly,certainty is the nature of finite math. boghog commented a truism that the dependent variable is never wrong. He used different words and I am just gleening from the content of his comment. It is important to me that most of you agree with BSAM. This contributes to my certainty indirectly. How does an ordinary person get the first breakthrough that leads to certainty "BEFORE" the pending trade arrives? Watch this moment and the moments that follow. Nothing will change in the world. Gather up the vision of ticks and contacts. Form some separate piles of them. be child-like. Now invent Legos. On a lego plate, invent all the pairs of two price bars. Or on a sheet of paper draw the 10 cases. If your mind works, you can do this. If you are not too lazy you can do this. Here is the thing, no one can do it based upon the evidence found in the financial industry. What is the smallest price volatility needed to draw all 10 cases? Can you draw the briefest trading cycle? Where did all that fake chaos go? Why is there zero chaos in markets? Ans: all variables have granularity. So nobody can even take the first baby steps to learn anything. work on a few sheets of paper for 30 minutes. this is work and time in action. No one has done the first 30 minutes of learning as yet and you type and type and type. Woosh..........
See the movie "Good Will Hunting". Why can't the smart guys figure out how the "system of operation of the market" works? How did Sister Montessori figure it all out so poor children without books could get down thoroughly with Arithmetic. All these numbnuts guys on ET hace PC's and they know nothing, they say.