April 25, 2017

IN THIS ISSUE

TURN A PROTECTIVE STOP ON AND OFF CONDITIONALLY
TECH SUPPORT TIP OF THE MONTH

TURN OFF A PROTECTIVE STOP ON AND OFF CONDITIONALLY
Experienced traders use protective stops to defend against changes in market conditions. Some conditions are cyclical in nature such as when London Forex markets close (the majority of the world’s Forex transactions occur during London market hours). Futures markets follow planting and harvest cycles, so particular months of the year might require a different protective stop in different countries. We’ll show you a technique that allows you to use a rule based indicator to decide when to add a condition to a protective stop.

In the example chart below we first created a neural net prediction and then added an Entry Price Percent Gain protective stop in the first Trading Strategy. The yellow equity curve is the result of that combination.

This chart displays the equity curves for both a percent gain (yellow) and a conditional time based stop (pink).

Next we added an additional protective stop that used an If/Then/Else rule to activate a stop based on a time found by the optimizer. Note the use of the null character, *, to negate the second part of the rule.

This conditional protective stop uses an If/Then/Else Rule to turn on the stop at 3:30 pm. We set the Y parameter to “*”, the null character, which means that the stop is turned off at other times.

We let the optimizer decide whether to use the entry price percent gain or the time rule.

The optimizer set the protective stop price equal to whichever price level was nearest the close. The optimizer also searched for the best time in the range between 2:30 and 4:30 p.m.

Other Conditions May Be Used
Other conditions such as month flags or relational indicators such as low price < 50 may be substituted for the time condition. Multiple conditions may be combined using the AND indicator from the Boolean category. For example, to create a conditional stop that is activated when the month is November and the Low price is less than 50, use the following:

If AND2 (NovemberFlag, A < B (Low, 50) then StopPrice indicator Else *

Click here to download the example chart for this article.

TECH SUPPORT TIP OF THE MONTH

Help When Your Model Isn’t Working

The NeuroShell Trader help file includes a topic called ” Troubleshooting Your Model – What to Do if You Feel You Haven’t Been Successful” that covers some overall guidance on building profitable trading models as well as practical tips.

Here are some of the highlights that we’ve told many of you about when you’ve called for tech support:

• Start with pretty good models and use optimization to make modest improvements to them. Search only a little on either side of the indicator parameters that are presently being used.

• Make sure you stick to a very few inputs to neural nets (usually about 5). When finding an optimum set of inputs, tell the optimizer to use at most 5 inputs.

• Make sure that you do out of sample testing when you optimize trading strategies.

We promise that the complete tip includes a lot more valuable information. Check it out.