How Would a Tighter or Looser Stop Change Your Trading Performance?

October 16th, 2007

How do you make money in the market?  As most astute traders realize, it’s not when you buy – it’s when you sell.  Early on in my trading, it seemed like I would get stopped out of trades only to see them go in my favor after I had already exited the position.  After reviewing my trades, it looked like if I established some better trade management rules I would be able to capture more profits off the trades I was already taking.  While I could eyeball my charts for each trade I took, the problem was there was no easy way to see quantitatively how a large number of trades would have worked out had I used a different trade strategy.  This is where the StockTickr Stop Analysis Center comes in.

The StockTickr Stop Analysis Center allows you to simulate different trade management strategies on your journaled trades – the trades you actually took.

It allows you to answer questions like the following:

  • Would my system make more money if I used tighter stops or would I just get stopped out more often?
  • Would my system perform better if I used looser stops?
  • Would my trades have worked out better if I didn’t move my initial stop for at least X amount of time?

You’ll be able to see how your actual trades would have performed in aggregate using different strategies.  You can also run simulations on subsets of your trades using the standard filters in the journal (tags, long or short, profitability, etc.)

The Stop Analysis Center will show you how the simulated strategy performed across each of your trades and gives an aggregate total:

Here’s a chart that shows one of my trades from several months ago that really reinforced the fact that I was moving my stop too soon.  The green C indicates where I was stopped out after moving my stop.  The green Exit in the corner  shows where this trade would have exited had I used a “don’t move my stop for at least 60 minutes” rule.  Admittedly this chart is a well chosen example, but this tool has allowed me to see that adding a dose of patience to a large number of my trades would have paid off consistently.

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