I was under the impression that the stop was meant to be set a little under the elected Reversal. Once a Reversal is elected, it can test the Reversal as support or test the next Reversal, according to how it is supposed to work. Otherwise, it would net too high of a drawdown.
From the user manual:
Thus, when considering Reversals as part of your investment or trading strategy, it is generally advisable to utilize a stop orders. In such case, we typically recommend looking at the closest opposite Reversal in the same time frame you used to enter a market position (e.g. weekly or monthly) as a price point in which to set a stop order
Armstrong has said that the GMW is not a trading tool and should not be used to trade. However, he has said some conflicting things in regards to the arrays and Reversals. He said we never trade in anticipation. Let the market show you the way. On the flip side, he also said the arrays can be traded if the market makes a high or low against a Reversal when it coincides with an array turning point.
This was why I took a position in SDOW: the arrays were showing a significant turning point for last week. If I had used the daily bearish reversals as an entry point as stockpile had mentioned he had used, I would have gotten a bit better of an entry point. So I will be watching those more closely as I consider buy/sell points. I expect the daily bullish reversals to start to come down from where they are now (as of now the next one is at $26,602.43) once Socrates sees a bottom for this current correction I will use that for an exit
This is also why I didn't take positions in DIS/WMT/SPY even though bullish reversals were being generated. The arrays were pointing to a turning point last week for all of these, as well. And since the bearish reversals are supposed to be the stop loss points, I expect that as long as bearish reversals are not elected on DIS/WMT/SPY I should watch for daily bullish reversals to be elected for entry points on those and have a much better entry point than Socrates does.
The problem with options is that even if Socrates is right, theta can eat into value. Other things such as earning reports and other Greeks can really skew the value. I don't know if Socrates is better or worse on individual stocks, as they are not as liquid as generalized asset classes. I would guess it is not as good. I also have not tried the GMW on the daily level, but be careful of using data on specific things that works well when backtesting- it could be just a coincidence.
I'm just monitoring right now and looking for anything that could signal a trade. When looking for an investment using Socrates one suggestion is to start at the GMW and look specifically for yellow or blue statues as they indicate the potential for trading opportunities. This would be verified by going to the arrays and reversals to see what they are indicating. So if they are going to be valid potential trading opportunities then shouldn't they statistically be better than random signaling a potential move in an instrument? At least worth some analysis I figured. Two strong candidates are "Crash Mode" (5%+ decline within 5 days 22.3% of the time - 76 data points) and "Phase Transition" (5%+ rally within 5 days 3-of-7 times with worst performance being 2.52%). Would be nice to be able to back test as far back as Socrates has generated data for, though.