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Ideal Stop

The Ideal Stop parameter is an ‘option’ type, so you can set up your own descriptive names for technical areas that would have been the best place for your stop loss. Click on the options link and then Right-click to add or delete parameters. You can also drag the options you create into the order you prefer, as well as setting one of them to be the default you use.

Because this parameter is type option, you’ll be able to group these stops in the Summary and Analysis tabs, and compare what will work best for you.

Keeping track of this over time will help you teach yourself the best place to have your stop.

Here are some examples:

  • previous swing point
  • daily high/low
  • opposite Bollinger Band
  • 78.6% Fib level
  • Fixed 20 pip stop
  • etc.

In this video we discuss the difference between the two parameters: stop needed and ideal stop. The stop needed is also known as the Maximum Adverse Excursion (MAE), which has been defined as: The largest move into negative encountered by a trade while it is open.

Watch This Movie

For example, a trade may close with a loss of -20 pips, but while it was open if it was at one point down a maximum -50 pips, then that would be the MAE. Why track this: although a system may seem viable on the surface, a particularly large MAE might reveal that actually it would not work in practice because the MAE would be too large for the proposed account size, perhaps eliciting a margin call that would render the backtest results inaccurate and misleading. The MAE is also useful in setting stop losses. If you know the MAE for most of your winning trades, then you can use that knowledge to arrive at a system with a favorable risk:reward ratio.

For example, you may find that most of your winning trades do not go against you by more than 30 pips, so you can then use that knowledge to cut your losses when they are more than 30 pips.

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