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 Periods (VEPs).
For example: Using Average True Range(ATR) with period 200 with a conservative risk % model:
**27VEPs is assigned to the based system which runs on the 1 minute chart where the default risk is set at 0.01% of free equity
**24VEPs is assigned to system #1 which runs on the 5 minutes chart, where the default risk is set at 0.02% of free equity
**21VEPs is assigned to system #2 which runs on the 15 minutes chart, where the default risk is set at 0.0.03% of free equity
**18VEPs is assigned to system #3 which runs on the 30 minutes chart, where the default risk is set at 0.04% of free equity
**15VEPs is assigned to system #4 which runs on the 60 minutes chart, where the default risk is set at 0.05% of free equity
**12VEPs is assigned to system #5 which runs on the 240 minutes chart, where the default risk is set at 0.06% of free equity
**9VEPs is assigned to system #6 which runs on the Daily chart, where the default risk is set at 0.07% of free equity
**6VEPs is assigned to system #7 which runs on the Weekly chart, where the default risk is set at 0.08% of free equity
**3VEPs is assigned to system #8 which runs on the Monthly chart, where the default risk is set at 0.09% of free equity
The Global Algorithmic Trading Software(GATS) will use the above inputs to calculate the position size of each financial instrument.
RISK WARNING!
There is a substantial risk of loss in futures and Forex trading. Online trading of stocks and options is extremely risky. Assume you will lose money. Don’t trade with money you cannot afford to lose.
The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security.
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