this system. First, let’s take a look at Figures 20.10 to 20.12, which show the aver-
age profit per trade in relation to the three input variables. It is evident that the
maximum trade length should be six days. What is not so obvious, however, is
what the values for the profit target and trailing stop should be. In situations like
this, there is room for some personal interpretations and compromises that make
the most sense to you as an analyst.
Looking at Figure 20.11, the 3-ATR profit target seems to be the best profit
target to go with a six-day maximum trade length, because it is the lowest value
surrounded by equally good values above and below it. The same reasoning
applies to Figure 20.12, which suggests the trailing stop should be placed 1.5 ATR
away from the highest high price during the life of the trade. However, combining
these findings and the data from Figure 20.10 places us on the slope of a not-so-
profitable area (remember the analogy to the topographical map, in Chapter 19)
with plenty of other low-profit variable combinations surrounding it. It is better to
lower the trailing stop to 1.2 ATR, so that we at least end up on top of the most
profitable zone.234 PART 3 Stops, Filters, and Exits
FIGURE 20.10
Average profit per trade for input variable 1.