Trailing stop

Discussion in 'Risk Management' started by turkeyneck, Jan 29, 2011.

  1. Does anyone like to use this kind of order? How do you set the stop to maximize its effectiveness, i.e. maximize profit and minimize risk? Set it to the maximum you are willing to lose on the trade?
  2. ugz


    after price exceeds target, i use a trailing stop. exceeding target is not the norm.
  3. Assuming you don't add to your winning positions, don't use a trail stop unless you have reached your main target objective, when that occurs, initiate an aggressive trailing stop in case it breaks out, otherwise pay a small price by getting trailed stopped in exchange of allowing a winner to run.

    For instance,

    You are trading GOOG, you are long from 600 and your main target is 700. When price reaches 700 instead of closing it or scaling out, initiate a 5 point target and see how high you can go with it, worst case scenario you get trail stopped at 695, but it could had been 700, 705,710, 715.

    Best of luck to you.

  4. I think BigHog said it best when he said that traders who trail stops are more concerned about saving profits than making profits :)

    It is important to let the trade breathe and reach the profit target you planned, unless you see evidence that the market is turning against you.

    It`s a natural tendency to maximize losses while minimizing profits. The opposite of cutting your losses short and letting your winners ride. It`s rooted in fear. Trailing stops may enhance this negative behaviour.

    You could for example trail a tight stop (giving up a few ticks) after your profit target is exceeded, but don`t start trailing immediately after showing a profit.

    You can trail your stop above retracements in a trend, so that you are not stopped out by noise.

    Personally, I`m trying to abandon trailing stops, although there are times when I have captured more of a move than I intended by using them.

    Finally, remember that you always have the opportunity to exit with a profit and then re-enter on a retracement if you still have conviction in the trade.
  5. Move the stop to B/E as SOON AS POSSIBLE.

    After that it's up to you, but you need to figure out a reliable way to keep the profits you've made.
  6. NoDoji


    Day trading: I rarely use a hard profit target; more often I watch to see how price gets to my profit target zone before deciding to take profits as planned or let it run. If price comes into my profit zone after having broken previous S/R level(s) easily, I assume there's some solid inertia to the move, and often choose to trail a stop above/below previous bars in the time frame that has the least overlap (I don't want to be shaken out of a good run, but I don't want to give back a large chunk of the extra profit by trailing too wide a range). The strength of the move lets me know which time frame price bars to use for the trail.

    Once a new high/low is made in the move, I watch for the retest of that level and if it continues on after a shallow retrace, I hang in there; if the breakout's weak or the retest fails, I take profits on the spot and decide if I want to reverse positions or wait for the next entry signal in the same direction. Sometimes it's worth counter-trend trading the pullback in a trend, other times the R:R isn't worth it and it makes more sense to wait for the next with-trend entry.

    Because I'm not trailing a fixed stop, I have to trail it manually, which is no problem because I rarely trade more than 1 thing at a time, 2 at most.

  7. I've been doing the same thing, but really been banging my head against the wall sorting through different TFs to use (larger TF = wider trail = early in trade, shorter TF = smaller trail = late in trade). As it moves into my profit zone, I typically switch to the lower TF as there's no sense in waiting for a large move to get me out but can still hang on if there's enough MOMO. (**Stop to price move is NOT directly proportional for me**)

    I always wondered if there was a different way.

    Thanks ND. Gonna take a peek at that :)
  8. I use them all the time to adjust my risk/reward ratio.
    If I buy a stock at 50 with a stop at 49 and a target of 53 I’m risking 1 to make 3.
    If the price moves up to 52.50 and I leave the initial stop in place I’m now risking 3.50 to make 50 cents.
    As the price gets closer to target I tighten the stop. Yes I’m protecting profits but that’s why I play the game, to make profits.
  9. bone

    bone ET Sponsor

    We use them all the time where profit targets get taken out and the longer term metrics are still a "go" on our trading model. The old stop/loss level gets cancelled and then bumped up to the recently exceeded profit target. Just a systematic way of letting a winner run.

    Is not applied to every winner, depends entirely upon the longer term metrics. For example, if you were long, and the market Daily, Weekly, or Monthly timeframes were technically overbought or very near an established resistance point, then we would just take our already established profit target level, cancel the stop/loss, not worry about the trailing stop, and move on the the next trade.

    We have had guys take very impressive profits using trailing stops, you really don't need to have very many of those to create a very impressive year (or career).

    IMO it is not an applicable strategy for every trade, at least the way we model the markets.
    #10     Feb 12, 2011