TOP STOP EXIT looks interesting

New comment
 

I read this in Septembers Active Trader and googled

By Adam White on Wednesday, June 20, 2001 - 12:33 pm:

I thought I shared this exit idea before, but it didn't come up on search, so I'll share it now.

I call my idea the Top Stop, and its a form of adaptive objective exit. The goal is to have an objective selling price that moves up when the stock moves up, and moves down when the stock is not moving up.

Illustrating on a long stock purchase: (This should work with any tradable, long or short.)

1. Start the Top Stop X ATR's (or a percent of the close) above the just purchased stock.

2. Adjust the Top Stop up or down by rules a and b below.

3. Sell when the Top Stop finally falls below the stock. (Of course use some sort of downward protection as well on the trade, say the Chandelier Exit, etc.)

Adjustment Rules:

a. if the stock moves up and creates a new higher close of N bars, adjust the Top Stop up an equal amount.

b. if the stock fails to create a new higher close of N bars (which can happen on either a move up or down), lower the Top Stop an amount equal to the net price move.

When a stock moves up consistently the Top Stop will remain safely above the stock, but in all other cases it will fall towards the stock, eventually triggering a sell from the upside. Speaking abstractly, the Top Stop places a limit on the total amount of price movement of the entire life of trade that does not go in the desired direction.

Testing should optimize for the number of ATR's that the Top Stop begins above the stock. In my testing the Top Stop scores a very high percent of wins to losses, but of course does place a limit on the life of the trade.

There are five things about the Top Stop I like:

1. It signals on an up move, not a down move, and thus it captures the equity lost by exits that trigger on downward movement.

2. Logically it can allow an infinite amount of movement in the desired direction.

3. Logically it can trigger at a price very near the ultimate top of the trend.

4. It is adaptive to price volatility.

5. It is suitably simple. It does not rely on additional indicators or controversial assumptions.

I've got to admit I have an agenda with sharing this- my testing resources are very limited, and I invite any interested persons to test the Top Stop further and report back to us.

Thanks! Adam White

If you can code and have the article it might be worth creating and EA

Strategy Rules for (Trend Following)

Go long tomorrow at the market, when today's closing price is higher then 100 day SMA

Place a limit order to exit the position at 4.5 times the 14 day ATR plus the absolute value of todays closing price minus yesterdays closing price.

If the closing price is the highest of the past 20 days raise the exit by the absolute value of todays closing price minus yesterdays closing price. If it fails to make a 20 day high close, lower it by the same amount.

This is based on stock/shares but it might be ok for FX on a daily Time Frame

 

yes, it may be interesting in practice, i know there are a lot of different trading rules like about money, like about strategy etc. but i think that more important it's a real experience of each trader becose everyone have nuances, mistakes etc. But yes the rules of different trader can be learning also.

 

hi

thanks fo share that strategy , it might be work in fx , should be tested first

===================

Forex Indicators Collection

 

Beno

There was two parts to that story in Active Trader I beleive that the story started, first part, in the August issue and the second part was in September.

Keit

 

That's true I have been looking for a copy.

So i don't know weather I have read the good or the bad half of the story. lol

 
Beno:
That's true I have been looking for a copy. So i don't know weather I have read the good or the bad half of the story. lol

The first part explain Mr. White's work and the author alterations in part 2. Will have to reread the story but I think your on part 2 were the author has added his alterations to Mr White original work.

I was think at some point in the future to write a library of exits, stops and profit taking routines and have ear marked that story as a posible inclution to the library. I do not have time to work on it now, however.

Keit

New comment