Dollar Targets v. ATR Targets

Dollar Targets v. ATR Targets

Feb. 7, 2024

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In our last Newsletter, we talked about a high-percentage system that uses “negative” reward-to-risk and beats the market by a mile since 2001.

Even more, because this system uses a highly-popular, highly-volatile instrument like the Nasdaq E-Mini and because it uses a multiple of the current Average True Range (ATR), it’s exploded in recent years.

Take a look at the Curve on our system from the last Newsletter since 2018 (trading 1 contract each time):

It’s absolutely destroyed the market in that time period, and if we compounded our hypothetical gains, we’d be doing far better.

Will this continue? Will the Nasdaq continue to have massive, manic ranges now and in the future?

It seems likely. And, if it does, then this strategy will do very well.

But the problem is the same as the benefit.

What happens to a system that uses ATR targets and stops when the range contracts?

You guessed it. That system will slow down and the profits will decrease quite a bit. And we saw that in this system before 2017.

So, what if we used dollar targets and stops instead? Let’s take a look.

Here’s the same system using a $500 target and a $2,900 stoploss. And we’ll also stop trading on Wednesday instead of Thursday.

Here’s the Report:

And here’s the Curve via Portfolio Architect:

It’s not as good. It shows less hypothetical profit and more drawdown.

And it also has a lower wining percentage.

For a wild instrument, using ATR gives up a lot more potential upside.

But for a more mild instrument, most times a static target will do better (like we see in this strategy before 2018).

Talk to you soon.

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.