In the presentation linked to the financial hacker it says:
"Do not use profittargets.(If you really want to, use a profit-lock mechanism instead)."
I have trouble understanding the argument. Im basically always using a TakeProfit when developing a trade system, particularly in the beginning when I evaluate entries.
Can somebody enlighten me what is meant here, maybe even jcl himself?
Re: not using profit targets during strategy development
[Re: gamadeus]
#476193 02/03/1920:1202/03/1920:12
Argument? This is largely learned through experience and data collection. Basically, profit targets limit the potential profit of any given trade and will tend to make your system less profitable.
This concept is examined in the book Trading Systems by Jaekle and Tomasini. It's definitely worth a read, especially for its coverage of risk management.
Why run some tests and see what it does to the profitability of your systems?
Tbh I dont use MAE and MFE that much anymore. I think Zorro in combination with R features much better tools for analysis.
Anyway, I think you agree that there are systems where a TP might be appropriate. Which brings me back to my original question about that absolute statement in the presentation. Perhaps that point is taken out of context, so it would be great if jcl could comment what that was all about.
Re: not using profit targets during strategy development
[Re: gamadeus]
#476202 02/04/1909:0202/04/1909:02
I do not know much situations where a TP would make sense. Suppose TP is at X and the price rises to maximum Y. If Y < X, the TP is useless. If Y > X, the TP causes a premature exit with loss of Y-X potential profit. Instead of a TP, you had then better used a profit lock or a tight trailing mechanism starting at X.
Re: not using profit targets during strategy development
[Re: jcl]
#476203 02/04/1909:0902/04/1909:09
ok that makes sense, thanks. in my old MT days I had more luck with a TP than a trailing stop, but perhaps that was also due the limited possibilties I had with that plattform
are there any profit lock or trail settings that you would recommend to use as a starting point for strategy development?
Re: not using profit targets during strategy development
[Re: gamadeus]
#476388 02/21/1923:2302/21/1923:23