[mapontosevenths]

OutOfHere gets it. Think about it in terms of probability. The closer to the current price your stop loss is the higher the odds of it being triggered by random market fluctuations.

The same applies to your profit target. This means that if your profit mark is $10, and your stop loss is $5 you will lose roughly twice as often as you win, all other things being equal.

What you actually CAN do is use smart money management, (something like the Kelly Criterion) to ensure that you properly capitalize on any slight edge you do manage to find without going broke in the long term.

That of course requires you to find a bet you can win 51% of the time, and that you be made of iron when it comes to sticking to the plan. Most folks can't.

[adamiscool8]

All of these points are irrelevant. If you have the data that shows 99.5% win rate, you would have the data on your expected win size, and could compute a fixed loss stop that would keep you on-side. In the example, which I'm assuming must be hyperbolic, your average win would only need to stay >1/199th of your average loss. I would agree that if a person cannot manage their positions to this, that person should stick to investing.

[OutOfHere]

The market is adaptive, particularly with options, and will adapt to bust your approach in a heartbeat. It will in general adapt to bust a lot more sophisticated approaches. This is not physics. The underlying assumptions change.

[adamiscool8]

In general, yes - no edge is forever. But that doesn't mean trading is a coin flip where no edge can exist. The market is adaptive because humans are adaptive - but, for example, their machine offspring are often slightly less adaptive and create opportunities for persistent returns. Even more so for most retail where your position size isn't creating slippage.

[OutOfHere]

I can try a dynamic intermediate stop-loss point, with the intended goal that is not too early where it triggers often, and not too late where the loss mounts geometrically. This is intended to greatly limit the max loss per trade, which is good, but it still has significant risk of being triggered unnecessarily. I am highly skeptical that this will work, because I even see in the chart that it doesn't, but it's worth an actual test.

[adamiscool8]

Yes, optimizations of this form can work to manage tail risk on an edge and can reproducibly lift expectancy for a strategy. GP is essentially claiming no positive edge can exist, which is false - though these edges may be short-lived and dependent on particular market regimes.