Above are theÂ 6 most recent losing trades from the Big Bamboo system. I’ve included the maximum drawdown incurred for each trade.
As I mentioned inÂ a previousÂ post, with volatility more than doublingÂ in October, the stops that worked well in backtesting should probably be doubled as well. This would take our optimum 4% stop and increase it to 8%.
Indeed, an 8% stop wouldÂ have changed 3 of the six losing trades intoÂ winners (I’m not going to count EFU since it was so close to 8%).
As I know that some of you are taking at least some of these signals, I would recommend that you do not use the 4% stop until volatility decreases. I have not decided yet whether I will alter the system to use an 8% stop in trackingÂ future trades.
After examining these trades, I feel even better about the system. I am likely going to start trading it for real, by the rules, soon. If I do, I am leaning towards using a 10% stop.
Side note: Some of the entries listed above are differentÂ from the entries used in the Big Bamboo tracking spreadsheet. The opening prices used in tonight’s post came from a different data vendor. I left them unchanged, not matching all of the prices used in the tracking spreadsheet, to emphasize that in backtesting, having bomb-proof data with absolutely no errors is crucial. With the exception of EFU (off by almost 2 points, our listed open being $151.09), the difference was usually not more than .20 cents. The discrepancies were not great enough to render tonight’s analysis invalid.