run the optimization procedure and allow for even larger stop-loss distances, but
for the purposes of this book, these results will have to do.
Moving on, Figure 20.14 tells us we have no other choice than to go with a
1.8 ATR stop loss (never go with the extreme values of the charts, because we have
no idea of what’s happening with values outside it), combined with a maximum
trade length of eight or nine days. By doing so, the legend in Figure 20.14 indi-
cates that the average profit per trade will be at least as high as 0.48 percent per
trade, regardless of the number of ATRs we choose for the profit target. The major
disadvantage with this setting is, however, that it is in the upper right-hand corner
of the chart, which means the standard deviation (and thereby the risk) will be high
as well. (To get the best risk–reward relationship, try to keep the input variables as
short-term as possible.)
Comparing our findings in Figure 20.14 with the information in Figure
20.15, we can see that we probably are better off with a maximum trade length of
eight days. Not only will that take us a little further to the left of the chart, but
given that the estimated profits are pretty much the same for the eight- and nine-
day settings, an eight-day setting will give us a little more bang for the buck in
regard to trading efficiency. Figure 20.15 also indicates that we should go with a
profit target of 3 ATR away from the entry price.
Table 20.3 shows the results of plugging these values into the meander sys-
tem, substituting the original stops and exits, and then testing the system on the
same markets as before. Before we compare Table 20.3 with Table 10.5, again note
that the average trade lengths in Table 20.3 are longer than the maximum trade
lengths specified by the exit rules. This is because the average trade lengths in theCHAPTER 20 Adding Exits 239
Long only: 1.8 ATR stop loss,
3 ATR profit target, 8 bars max. trade length PercProf: 90.77
Trades PercWin NetProfit AvgProfit ProfitStD RiskRatio
Average: 198.42 53.83 149,951.03 838.77 Market
St. Dev: 48.26 4.70 94,746.93 621.34 6,484.33 0.12
High: 246.67 58.54 244,697.96 1,460.11 7,323.11 Portfolio
Low: 150.16 49.13 55,204.10 217.43 (5,645.56) 1.35
ProfitFactor RiskFactor MaxDD PercDD PercTime AvgLength
Average: 1.39 0.17 65,254.96 30.82 39.76 8.32
St. Dev: 0.27 0.11 36,474.46 19.36 6.06 0.40
High: 1.66 0.28 101,729.42 50.18 45.82 8.71
Low: 1.11 0.06 28,780.50 11.46 33.70 7.92TABLE 20.3
Results of Stop Loss for Meander System