Using Stops: The Good, The Bad and The Ugly

I recently gave a presentation on Better System Trader about using stops on a breakout strategy. The research produced results I was not expecting and may be surprising to you. The stops tested are

  • No stops
  • Maximum Loss using ATR (Intraday and End of Day)
  • Maximum Loss using percentage (Intraday)
  • Trailing ATR (Intraday and End of Day)
  • Profit target using ATR (Intraday and End of Day)

The Strategy

Buy Rules:

  • Stock is member of the Russell 1000
  • Close is greater than $10
  • 21 day moving average of dollar volume is greater than $10 million
    Today’s Close is higher than highest high of the previous 252 trading days
  • Ten period ADX greater than 35
  • One hundred day Historical Volatility is greater than 35
  • Today’s DollarVolume is 25% or more greater than the 21 day average DollarVolume
  • Enter on next open

Sell Rules:

  • Exit after 6 months.
  • Exit on next open


Some Results

Charts from the presentation.




To get the video of the presentation and the spreadsheet of the data, fill in the form below.

Thank you

I want to thank Andrew Swanscott for his great Better System Trader site. I highly recommend this site to all traders to help improve their trading and to get trading ideas. I know that I have learned a lot from the other guests on his site.

Good Quant Trading,

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Click Here to Leave a Comment Below

Martyn Tinsley - January 27, 2016 Reply

Hi Cesar

A really great piece of research. I just listened to your interview about this on Better System Trader. I have done similar studies myself on Stops (although no where nearly as comprehensive as yours. I have used Van Tharps measure of R multiples myself for many years now. What I struggle to understand is how you managed to use an R value for the initial baseline (where you didn’t use any stops). I have always been of the opinion that for the R value measure to work you had to have a max loss stop to define R of 1 for the trade? i.e. it is that very fact that allows you to define what your downside risk for the trade is, and hence measure upside profit as a ratio of this. I only therefore use the R measure on my systems that do use stop losses. On my other systems I am forced to use an alternative measure and so struggle to compare like with like between systems that do and those that don’t use stops. I would REALLY appreciate therefore getting a little more information on how you do this for your initial baseline. I hope you find the time to reply.

Best Regards, Martyn

    Cesar Alvarez - January 27, 2016 Reply

    In ‘Trade Your Wat to Financial Freedom’ he mentions that if you are not using a stop then you can use the avg % loss as your risk amount. Then to get R multiple it is (% return of trade)/(avg % loss of all trades). I took a quick look but could not find the page/section that he made

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