Completely agree! That was one of my first mistakes. I've only been demo trading for a month and found this to be one of the biggest "leaks".
Anyway, I spent half of my weekend doing some more backtesting. I tried to find the "optimal" SL:TP ratio when using the PSAR indicator. I compiled three months worth of backtested trades which gave me a median of 1.2:1 (or TP = 0.83SL), and a mean of 3:1 (or TP = 0.33SL). That is a HUGE difference due to the effect of outliers on the mean. I omitted those that seemed outrageous and skewered the average dramatically e.g. a trade that gave me a 100:1 SL:TP ratio.
I did two more backtests for the whole of August 2010 and September 2010 comparing the two different TPs with my original TP of 0.5SL. Here are my results.
September 2010 EUR/USD: TP = 0.5SL versus TP = 0.83SL
(TP = 0.5SL)
Nominal Profit: 100 pips
Win %: 64%
Number of trades: 89
(TP = 0.83SL)
Nominal Profit: 67 pips
Win %: 48.3%
Number of trades: 89
If I skip every trade following a loss, the results become:
(TP = 0.5SL)
Nominal Profit: 149 pips
Win %: 65.7%
Number of trades: 67
(TP = 0.83SL)
Nominal Profit: 51 pips
Win %: 51.7%
Number of trades: 60
August 2010 EUR/USD: TP = 0.5SL versus TP = 0.33SL
(TP = 0.5SL)
Nominal Profit: -1 pip
Win %: 62%
Number of trades: 92
(TP = 0.33SL)
Nominal Profit: 119 pips
Win %: 76.1%
Number of trades: 92
If I skip every trade following a loss, the results become:
(TP = 0.5SL)
Nominal Profit: 150 pip
Win %: 66.7%
Number of trades: 69
(TP = 0.33SL)
Nominal Profit: 199 pips
Win %: 77.6%
Number of trades: 76
I will probably need to test at least two months with TP=0.33SL to confirm if it is superior than TP=0.5SL. I suspect it is since it's a far more meaningful number than TP=0.5SL which I plucked out of thin air.
modern spoke of using a trend filter which I will also hope to start testing this week. In some ways, skipping a trade after a loss is a defacto trend filter. Almost every time I do this, my results improve.
My other concern is if 100 pips is sufficient profit per month. There's another thread on this page that claims to make 1,500 pips per month. That puts my 100 to shame, lol (with seven months worth of backtesting with TP=0.5SL, my average is around 130 pips per month after spread). :28: 