Risk based Exit

[arpad_37]

I am trying to develop an exit signal based on R (similar to profit stop but based on the initial risk - say2R).

My exit signal is: LongExitTrigger:=
Ref(Cross(C,2*(LongEntryPrice-LLV(C,30))),-1);

LongExitPrice:=OPEN;

However looking at the results and there are quite a few trades with larger that 2R gains. I have looked for the possibility of slippage but could not be the case (18R). Can anyone help please?

Regards,

Arpad

[arpad_37]

I should probably clarify my exit trigger:

LongExitTrigger:=
Ref(Cross(C,2*(LongEntryPrice-LongInitialStop)),-1);

LongExitPrice:=OPEN;

Regards,

Arpad

[arpad_37]

David,

Can you pelase advise how TradeSim calculates the R value.
Is it (entryprice-initialstop)*position size?

Regards,

Arpad

[David Samborsky]

Rmult = reward/risk

Rmult=NetTradeProfit/(TradeRisk+EntryTransCost)

where;

NetTradeProfit=TradeProfit-EntryTransCost-ExitTransCost

[arpad_37]

Thanks David,

How do you calculate Trade Risk (R)?
Is my equation above correct?

Regards,

Arpad

[David Samborsky]

Yep you got it :wink:

[arpad_37]

Thanks David,

Can you than please explain why would I get trades >14R on this exit signal:
LongExitTrigger:=
Cross(C,LongEntryPrice+2*(LongEntryPrice-LongInitialStop));
?
Regards,

Arpad

[David Samborsky]

Also note that in order to contain downside risk to 1R you need to enable protective stops or use a trailing stop. Failure to do so will not contain the downside risk.

[arpad_37]

Thanks David,

I do manage the downside risk with the LongInitialStop command.
I am just trying to see the distribution of the "R" trades if I put in a profit stop (but based on R rather than %).

Regards,

Arpad

[David Samborsky]

What you could do is to export the TradeLog or the R-multiple chart and then use Excel to plot a distribution chart.

[arpad_37]

Thanks David, I have that part worked out, however I am struggling with setting the exit Trigger to take profits based on xR as per my exti Trigger above.

Regards,
Arpad

[David Samborsky]

Thats because Metastock doesn't let you reference your entry price very easily. :(