The Daily Market Forecast... optimizing stops

Friday’s Blog Results: The suggested buy @ 4360.00 ran for 30.25 points with only two ticks of adverse move.

Quick Tip: Optimizing stops.

Remember this from last issue? “Stops are so easy. Pick your risk number. That gives you position size. Hit enter.”

True enough but there is still the decision as to WHERE the stop should be placed. There are plenty of popular methods that the books, Google or YouTube can teach you. This blog is about OPTIMIZING the stop method you’re already using.

Let’s say your preferred stop method is a fixed number you’re willing to lose. Here’s how to optimize it: Log the MAE (Maximum Adverse Excursion) for every trade setup, whether you took the trade or not. This is simply how far against your entry it went before stopping out or hitting your first profit target.

Obviously, the maximum MAE you’ll have is the stop itself. But on all those winning and breakeven trades there is a number it went against but didn’t reach the stop. This is important data. Keep it updated for every trade from now on.

Now you can determine what percentage of the time your trades stop out but more importantly how often they move against your entry and how far. Here’s an example. In one strategy we trade the data shows that 92% of all trades don’t go beyond 5.75 points MAE (in active markets, less in calmer “weather”). Good to know! Now you have a maximum risk you can assign to all trades that has statistical relevance. This is edge. And the better news is that this number changes with volatility so you can monitor and adjust for current market conditions easily.

Today’s Best S&P Futures Turning Points (Plenty can change by the open, be aware):

Short Level: Sell 4412.00 stop 4417.25.  

Long Level: Buy 4285.50 stop 4279.75.

Trade well,

Mike Siewruk

P.S. Tired of trading alone? Need more quality setups? Join our team of great traders and accelerate your performance. Copy down this coupon code WINTER2022 and save 100 per month for life on your membership. Click here for FREE video training and details.