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A better way to set Stop Losses by Dr. Glen Brown

 

Your Stop Loss should be based on the Volatility Exposure(VE) of the financial instrument .

Volatility is the  rate at which the price of a financial instrument  increases or decreases for a given set of returns.

How do we measure Volatility of a financial instrument?

Volatility is measured by calculating the standard deviation of the annualized returns over a given period of time. This shows the range to which the price of a financial instrument may increase or decrease. Hence, Volatility measures the risk of a financial instrument.

Within the Global  Algorithmic Trading Software(GATS), We use Volatility to  indicate the pricing behavior of the financial instrument which help us to estimate the fluctuations that may happen within different timeframes.

We use the PATS Average True Range(ATR) indicator to set the stop loss and profit target for the various subsystems and strategies.

At Global Financial Engineering, we believe that your stop loss should be based on the number of Volatility Exposure Days (VEDs) or Volatility Exposure Periods (VEPs). 

For example:

**1 VED or 12VEPs is assigned to the based system which runs on the 1 minute chart where the default risk is set at 0.25% of free equity

**2 VEDs or 12VEPs is assigned to system #1 which runs on the 5 minutes chart, where the default risk is set at 0.5% of free equity

**3 VEDs or 12VEPs is assigned to system #2 which runs on the 15 minutes chart, where the default risk is set at 0.75% of free equity

**4 VEDs or 12VEPs is assigned to system #3 which runs on the 30 minutes chart, where the default risk is set at 1.00% of free equity

**5 VEDs or 12VEPs is assigned to system #4 which runs on the 60 minutes chart, where the default risk is set at 1.25% of free equity

**6 VEDs or 12VEPs is assigned to system #5 which runs on the 240 minutes chart, where the default risk is set at 1.5% of free equity

**7 VEDs or 12VEPs is assigned to system #6 which runs on the Daily chart, where the default risk is set at 1.75% of free equity

**8 VEDs or 12VEPs is assigned to system #7 which runs on the Weekly chart, where the default risk is set at 2.00% of free equity

**9 VEDs or 12VEPs is assigned to system #8 which runs on the Monthly chart, where the default risk is set at 2.00% of free equity

The Global Algorithmic Trading Software(GATS) will use the above inputs to calculate the position size of each financial instrument.

 

Lux Trading Firm

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