Page 1 of 1
Signal or gap slippage
Posted: Tue May 01, 2012 1:18 pm
When trading the turtles breakout system, what are your opinions about the following. Should we trade a breakout signal even if the price gapped enormously through the signal or should we have a tolerance beyond which we ignore the signal until and if the price reverts to within the tolerance.
I am saying this because a huge opening gap through the breakout signal can eat most of the profits even if the trade is good (especially with interest rate contracts). The risk/return of the trade is heavily distorted.
Posted: Tue May 01, 2012 7:15 pm
How often does this kind of enormous gap occur in past history? Does it occur often enough that you would feel comfortable and confident to trade based on a "tolerance" value that was derived from backtests?
You could run a set of backtests with stepped parameter values, varying the numerical definition of "tolerance". When the backtest results are collected, you could choose the value of "tolerance" whose backtest results please you the most.
- ... have a tolerance beyond which we ignore the signal until and if the price reverts to within the tolerance ...
Posted: Thu May 03, 2012 12:29 am
Thank you very much slugo. This is the thinking pattern we should be going through
Posted: Sat May 05, 2012 8:35 am
Note also that missing getting on board a mother of a trend will severely limit performance also -- much more destabilizing than simply taking a small loss. If a market is going to give you a 30R move, and you've missed that entry by worrying about a small loss so you miss your low-risk entry point, when do you get in then? (rhetorical question)