enabliing volatility sizing

[gawdib]

the manual says that i cannot make these choices unless there is a valid protective stop that matches the initial stop value. how does one do this? i did put in the function of "enableprotective stop" and I put in a value for the initial stop. thank you

[David Samborsky]

You can have volatility position sizing without a protective stop in place. However for the risk apsect to be valid the InitialStop should be accompanied by a protective stop otherwise you would beable to exit a trade well past the stop.

To enable risk based position size models all InitialStop values must be nonzero and positive.

[gawdib]

Thanks David
this iis on page 93 " If valid Initial Stop data is not detected in the trade data then this model will be disabled from the radio group. Important: The initial risk is only really valid if a protective stop or trailing stop has been used to limit the maximum loss of the trade to a level, which corresponds to the initial stop value. To enable protective stops when generating a trade database please refer to the section in the previous chapter Using the Initial Stop as a Protective (Money" and...

But I cannot feel confident that I understand because
1. page 40 there is a spot called Initialstop that comes under the recordtrades part of the coding. I thought that if one fills out a "values must be nonzero and positive" amount in the section above (<underthe 5 basic parts of the trading system,) called Initial stop, then this value from above would be brought down and used by tradesim. The above implies to me that is not so.
Is there any use for the 2 spots for initial stop, then, if one does NOT USE THE "ENABLEPROTECTIVE STOP VARIABLE? ie the initial stop will not work in any way if used "alone", even when one does not put a zero in the initialstop section which is under the "tradesim.recordtrades"?

sort of related: If the tradesim command "enableprotective stop" is put in, how is one to get a trailing stop put in ? I do not remember a similar function for the trailing stop. your separate section mentions volatility stops , but there are a lot ov other ways of doing trailing stops besides based on volatility.

thank you for your patience, regards, geoffrey

[David Samborsky]

The InitialStop only acts as a Stop if you have enabled protective stops and you have called the EnableProtectiveStop function.

To use the risk based PS models you need the InitialStop to be nonzero and positive for all trades otherwise risk based PS models will be disabled in TradeSim. For the risk to be valid in the risk based PS models you have to enable protective stops otherwise the risk will not be limited by the InitialStop. Of course TradeSim will still calculate the PS based on the difference between the EntryPrice and InitialStop but if protective stops are not enabled then the exit could shoot right passed the InitialStop and your risk will not be properly defined from trade to trade.

If you are using a trailing stop function as part of your exit strategy then it is not neccessary to enable protective stops. Why is this? Simply because the initial part of the trailing stop behaves as a protective stop so enabling a protective stop is redundant. You would also assign the trailing stop band to the InitialStop as well so you can use the risk based PS models if so desired. This is one situation where you would use an InitialStop without having enabling the protective stops because the trailing stop function does this for you.