Strategy testing using a trading robot

How to Effectively Set Stop-Loss Points

Setting stop-loss and take-profit points is often done using technical analysis, but fundamental analysis can also play a key role in timing. For example, if a trader is holding a security ahead of earnings as excitement builds, he or she may want to sell before the news hits the market if expectations have become too high, regardless of whether the take-profit price was hit.

Moving averages represent the most popular way to set these points, as they are easy to calculate and widely tracked by the market. Key moving averages include the five-, nine-, 20-, 50-, 100- and 200-day averages. These are best set by applying them to a stock's chart and determining whether the stock price has reacted to them in the past as either a support or resistance level.

Another great way to place stop-loss or take-profit levels is on support or resistance trend lines. These can be drawn by connecting previous highs or lows that occurred on significant, above-average volume. Just like moving averages, the key is determining levels at which the price reacts to the trend lines, and of course, with high volume.

When setting these points, here are some key considerations:

Use longer-term moving averages for more volatile securities to reduce the chance that a meaningless price swing will trigger a stop-loss order to be executed.

Adjust the moving averages to match target price ranges; for example, longer targets should use larger moving averages to reduce the number of signals generated.

Stop losses should not be closer than 1.5-times the current high-to-low range (volatility), as it is too likely to get executed without reason.

Adjust the stop loss according to the market's volatility; if the security price isn't moving too much, then the stop-loss points can be tightened.

Use known fundamental events, such as earnings releases, as key time periods to be in or out of a trade as volatility and uncertainty can rise.

Strategy testing using a trading robot

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Since the Chartmaster trading algorithm first became available to individual traders, I have learned just how different we all are when it comes to our preferences and trading styles.

I am rather loud and proud about the successful results that the algo can achieve on usdzar, which is largely considered an account killer for most traders. The truth is that usdzar is my personal preference and I like it because of the high performance and low risk relationship that my strategy offers on this pair. It was also a personal challenge for me to conquer one of the toughest pairs in the market. Unfortunately with the volatility that this currency pair moves, many traders are left on the sidelines as their account balances are too small.

Why?

Trading on usdzar using Chartmaster requires a starting balance of no lesser than $1000 and this is to make sure that your losses are not more than 2-3% of your account. Essentially it is for good risk management because of the type of trading strategy used.

So what is the big deal right now?

I've spoken to many traders and found the following:

1. A high number of traders prefer to start with a $500 trading account

2. Swing trading on the lower time frames (M30 - H1) is the favorite

To summarise, most traders prefer to start off with a $500 account and see regular trades with the account growing at a reasonable rate.

With this in mind I have started testing different moving average crossover strategies that are published online to see how well they work (and if they work). So far all of them have failed a test over the last 3 years, blowing the account or landing up with a massive draw down.

I then went on and tried a few of my own and came up with really good growth that eventually landed up in draw down, not as bad as before but still not profitable.

Do you have a moving average crossover strategy that you would like to test? Please share your ideas with me in the comments and specify the moving averages, currency pair and time frame respectively.

I'll be running a few more tests and share the results here with you.

Vee

RISK MANAGEMENT

Risk Management Techniques For Active Traders

Planning Your Trades

Stop-Loss and Take-Profit Points

How to Effectively Set Stop-Loss Points

The Bottom Line

Position Sizing

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Strategy testing using a trading robot