ATR vs WPT

[chrisg]

I was wanting to get some insight from those who trade eod, especially futures and commodities. What are your views of managing your trade with the ATR vs WPT method. I know that Matt uses the ATR in order to catch large moves. I was thinking about using ATR for half my position and the wpt for the other half.

Thanks,
chris

[MLiddy]

Hi Chris,

I just went back through all of my US and Aussie Stock trades for the last 4 months, and looked at what would have happened had i managed them with the ATR Stop instead of WPT's. In both cases i still moved stop to breakeven at 100% initial risk, but managed them different from then on. All results are closed trades including commisions.


Managed with WPT's

Trades 59
Win 16
Loss 20
B/E 23
% Win 46.61
Ave R Win 2.86
Ave R Loss 1.09
Total R Gain 23.79
Expectancy 0.40


Managed with 3ATR Stop

Trades 59
Win 15
Loss 20
B/E 24
% Win 45.76
Ave R Win 4.67
Ave R Loss 1.10
Total R Gain 48.12
Expectancy 0.82

Results certainly seem to be pointing to using the ATR and letting the profits run. However, this is only a small sample, as it only really affects the wins, so i only have 15 of these for comparison. Also, stocks have been in a pretty strong uptrend. Would be interesting to find out from others how the ATR and WPT's stack up on their trades. From now on, i'm using the ATR:)

Cheers
Matt

[Matt Bowen]

Hi Chrisg,

I don't think there is anything wrong with either one. You will making money with both. But I think you have to ask a better question: "Where do I want to be in 5, 10 or even 15 years?"

Using the WPT's will make you feel better as a new trader because your taking profits and the you get to hear the cash register ring (often), this appeals to most traders (especially new traders).

Using the ATR's is about building wealth, not ringing the cash register. When you cash out of an ATR trader it's usually because something has shifted in the situation or sentiment and volatility has become more of a problem than a precursor to profits.

I have used both of these strategies for months, it the case of ATR's I was using them well before I even came on board to MTPredictor because they are used by many professional traders. If you went back an test ATR stops against anything else out there you are going to find that they will consistently rank in the top 3 of all exit strategies... no they are not always the best, but they are damn good and in this business consistency goes a lot further than anything else because that's what builds your equity curve.

Also, when looking at systems make sure you calculate the Expectunity or
Expecectancy by the trading opportunities (Expecectancy x Opportunity) this will give you another angle to compare apples to apples. But I would agree with Mliddy (Matt) that the sample size would be better to look at once we have 100 trades. Anytime the sample size is less than 100 the metrics (stats) can change. Having said that I still think you are going to see the ATR come out on top with the best results.

Hope that helps,

[MLiddy]

Hi Matt,

Just wondering whether you had done any testing between the two methods? Do you currently use the ATR for your Commodity trading? I'm going to go with the ATR from now, just seems better to me in terms of letting profits run... even if the number of winners drops a bit. I will keep results on what would happen with WPT's as well though, so when i have more trades i can compare.

Cheers
Matt

[jswin]

Hi Matt,

Just wondering whether you had done any testing between the two methods? Do you currently use the ATR for your Commodity trading? I'm going to go with the ATR from now, just seems better to me in terms of letting profits run... even if the number of winners drops a bit. I will keep results on what would happen with WPT's as well though, so when i have more trades i can compare.

Cheers
Matt

Hi Matt,
Have you continued to use the ATR for exits? Have you done any more comparisons to WPT exits and, if so, would you mind sharing your findings?
Thanks
Joel

[Steve Griffiths]

Hi guys,

The WPT's are better when the market is in a narrow range, and the ATRStop is better when you are anticipating a larger degree move, hence letting the trades run........

Steve

[Matt Bowen]

Hi Jswin,

Have you continued to use the ATR for exits?

YES!

Have you done any more comparisons to WPT exits and, if so, would you mind sharing your findings?

In terms of testing, no. I'm done testing ideas (Thank God). I spent 9 years on System Writer and TradeStation. It was a great experience, but it required a huge amount of time to lean easy language. The average person is not going to go through all of that to find out what really works. The average person wants to see a 30 minute infomercial and then whip out a credit card to solve all of his problems. Again, logic rarely works in trading.

Go back an read Matt Liddy's post: http://www.mtptrader.com/showpost.php?p=6440&postcount=2 Matt did a great job and this takes an enormous amount of time to run these numbers, but my guess is that these number are not going be far off once he has a sample size of 100 trades. In this test he has 60 trades and this is a very good start.

I've seen results on End-of-Day ATR's from high .60's to low .90's In terms of the WPT setups I was never happy taking profits at 4 R-Multiples and then seen the trade move on to 10 or 12 R-multiples. Stops are very important and they are personal, you have to ask yourself what your objective is long term otherwise you will be constantly revisiting this issue. Most traders that have been trading less than 5 years are not going to like ATR stops, because the CRANIUM is still getting in the way and until you shut that little voice off in the back of your head, you will always be second- guessing yourself.

I could sit here and debate just about any trading exit strategy, but here is the problem: "The exit strategy has to be based on your risk tolerance". Most people are probably saying: "Well what the hell does that mean?" And that's a good question because it MEANS EVERYTHING.

Think about it for a second... if you trading with a small $5000. account are you going to sit through a 15 or 20 point move on the S&P 500 E-mini or a 10 or 15 point move in a stock? I've taught enough traders to know that the first "wiggle" or "reaction" and the trader is GONE! Most people are happy to take profits and that's exactly what prevents them from getting large R-Multiple trades. Now conversely, if you have $50,000 in your account and you are trading 1% position sizing (risking $500.) are you going to be the nervous trader whose looking for ACTION and needs a profit? No, you are going to be calm cool and collected and more importantly you will not care if the trade is a small loser because you are letting the ATR manage the trade.

Why doesn't anybody else talk about this? Because Everybody is focused on the Damn entry. You don't make money on entries, you make money on exits". Everybody spends 95% of their time looking for the best entry and if they are lucky they might spend 5% of their time (if any) on the exit.
This blows my mind because think about it....we all get in a the same signal, but have you ever notice why the results on this bulletin board are so vastly different? Because nobody exits on the ATR. About half way through the trade the have a "CRANIUM EXPANSION" and decide that they are smarter than the system and BAMM...they just became their own worst enemy because they are going to take themselves out of the trade prematurely. I see this happen ALL THE TIME.

They question is why?

There are several reasons:

1). When a traders is undercapitalized they will do all kinds of stupid stuff (and it's mainly due to the fact that they are trading scarred money) that means money they can't afford to lose. (Yes, I did this too when I started trading).
2.) People love to ring that cash register... it feels so good to TAKE THE MONEY of the table....they can now breath (another sign they are trading over their head).
3.) Impulsivity - This is where the trader feels like they are in a casino rather than a money management program.

I think it's important here to note that I know all of this stuff because I horrible trader my first 4 years and I lost money consistently. In fact, I would not only make the same mistakes twice but sometimes three times. Trading is a business and until you view it that way it will continue to teach you many costly lessons. However, if you read the book below...you can avoid many of them. I wish this book was around when I started trading because it would have saved me about 10 years of wasted time and money. I'm very serious about this... this book written by Van Tharp when he spent 6 years working with some of the best traders in the business. Early in Van's trading career he made many of the same mistakes and that's what caused him to write the book. If you study MTPredictor you will see how Steve has built the software around the principles outlined throughout the book.

Here are just a few of the gems you will read about in this book:

Why do most traders lose money? "Because they would rather lose money than admit they're wrong."

-Marty Schwartz

Elliott Wave Theory allows one to create incredibly favorable risk/reward opportunities. That is the same reason I attribute a lot of my own success to the Elliott Wave approach"

-Paul Tudor Jones

You can Risk 1 percent of your capital, you can risk 5 percent, or you can risk 10 percent, but you better realize that the more you risk, the more volatile the results are going to be.

-Ed Seykota

"Most people, in most careers, are busy trying to cover up their mistakes. As a trader, you are forced to confront your mistakes because the numbers do not lie"

-Marty Schwartz

"It's Incredible how rich you can get by not being perfect"

-Larry Hite

"The key to long term survival and prosperity has to do with the money management techniques used in the technical system"

- Ed Seykota

"I don't know too many people who get rich taking small profits"

-Larry Hite

Learn to take losses. The most important thing in making money is not letting your losses get out of hand.

-Marty Schwartz

http://www.mtptrader.com/Freedom.gif (http://www.amazon.com/Trade-Your-Way-Financial-Freedom/dp/007147871X/ref=pd_bbs_sr_1/103-1099458-0762231?ie=UTF8&s=books&qid=1173967243&sr=1-1)