Beta-Adjusting Trailing Stops by Thomas Bulkowski
Have you ever wondered how to improve the performance of your favorite indicator or trading system? By using your indicator to signal a buy and a beta-adjusted trailing stop to get you out, you could improve your investing results.
If youíre like many traders new to technical analysis, you spend scores of hours adjusting parameters on indicators trying to improve your trading systemís performance. You may have tried to combine several indicators to help gauge buy and sell decisions. You may have tried to add your own special twist to popular systems. Do you have one indicator that handles both buy and sell signals? Have you considered that one indicator may be great at placing buy signals but poor when it comes to selling?
In that case, why not split the buy and sell decisions? During my quest for the perfect trading system, I noticed that the use of a trailing stop significantly improved performance of the system. The improvement did not apply to just one trading system; it applied across numerous indicators and strategies that I tested. In my testing, it became clear that the buy and sell signals should be treated independently. This is why you may want to have two indicators in your system: one to get you in and one to get you out. Hereís a technique I developed called BATS, a beta-adjusted trailing stop, that uses the stockís beta to adjust the setting of a trailing stop-loss.