(ATR) will produce the highest average profit per trade (as indicated by the legend to
the right of the chart), together with any stop loss ranging from 0.8 to 2 ATR.
However, because of the information from Figure 20.1, we know that the tighter the
stop loss the better off we will be when it comes to the system’s risk–reward ratio.
Figure 20.5 shows the average profit per trade in relation to the maximum
trade length and the profit target. In this case, it is easy to see that the best choice
for the maximum trade length is six days, which works with almost all profit tar-
get distances. At this point, we can decide that the maximum trade length should
be six days and the profit target should be placed either 1 or 1.5 ATRs away from
the entry price. All that is left is to see if we can fit a stop loss into the mix that
preferably should be no larger than 1.2 ATRs.
Figure 20.6 confirms that the maximum trade length should be six days. From
Figure 20.6 we can see that the best choice for our stop loss is to place it 1 ATR
from the entry price, because this stop loss is the tightest stop that is surrounded by
two other stops that produce similar results. The 0.8 ATR stop is not a good alter-
native, because of the lower average profit produced by the 0.6 ATR stop.CHAPTER 20 Adding Exits 229
FIGURE 20.5
Average profit per trade versus maximum trade length and profit target.