Author Topic: Stop-Out  (Read 3609 times)

Cee Fish

  • Newbie
  • *
  • Posts: 1
  • Karma: +0/-0
Stop-Out
« on: September 26, 2013, 04:01:22 pm »
One feature to add might be a stop-out in back tests. As It stands, the only stop-out is a timed, but realistically, if your down 10% on day two of a trade, you'd likely get out of a trade. 

admin

  • Administrator
  • Sr. Member
  • *****
  • Posts: 315
  • Karma: +12/-0
    • Pair Trading Lab
Re: Stop-Out
« Reply #1 on: September 27, 2013, 09:32:19 am »
We will think about that, but the problem is, that you cannot guarantee any stop-losses in stock market. So in reality, stop-loss like this is not of much use, because most black-swan events on stocks take place during weekends or nights and when your stop-loss is executed (next day 9:30 EST), it is usually too late anyway.

So it is nice to set a stop loss to 10% of trade, but in reality your pre-defined level is often not achieved and you exit with significantly higher loss.

I have already experienced in my live trading a situation, where the long stock of the open pair went 40% down and the short one went 20% up, both during the (same) weekend. You cannot really control situations like this - the only way is to diversify properly (this terrible drop caused only 4% DD of our pair portfolio).

So we prefer to wait the loss out and use timed stops, whatever the loss is. You can afford that, if you trade more pairs (at least 8, let's say) at the same time.

Anyway, we are open to suggestions here, because this is really important topic. The point is that no matter what level you set for your stop-loss, it is never guaranteed in stock market.
« Last Edit: September 30, 2013, 04:11:19 pm by admin »

admin

  • Administrator
  • Sr. Member
  • *****
  • Posts: 315
  • Karma: +12/-0
    • Pair Trading Lab
Re: Stop-Out
« Reply #2 on: October 24, 2014, 03:29:42 pm »
Other traders also advise to use time-based stops:
http://epchan.blogspot.com.es/2007/01/what-is-your-stop-loss-strategy.html

Trevor Carvey

  • Newbie
  • *
  • Posts: 4
  • Karma: +0/-0
Re: Stop-Out
« Reply #3 on: February 15, 2015, 09:08:35 am »
so yes of course we all need a stop out in our trading..... banks do, profesional traders do, and plainly we cant run a backtest and build a 'system' based on just 'timed stop outs' as black swan event will potentially render us bankrupt!!

so... can you advise how we run the back test with stop loss and profit taking built into the back test ?

thanks very much

admin

  • Administrator
  • Sr. Member
  • *****
  • Posts: 315
  • Karma: +12/-0
    • Pair Trading Lab
Re: Stop-Out
« Reply #4 on: February 15, 2015, 01:31:10 pm »
The problem is it is not really possible. Or - it is possible, I can add stop-losses - but they won't protect you. The reason is specified in my first post in this thread.

You protection is the market neutrality of pairs trading + diversification.

Your ideas are welcome, if you come with a good idea, we will implement it.

Also, I invite other users to discuss this matter in this thread.