Trailing stop

Discussion in 'Strategy Development' started by dhall, Jun 7, 2006.

  1. dhall


    I am interested in trying to use a trailing stop. I use IB for trading.

    IB doesn't recommend using a trailing stop. They believe that I would be stopped out of almost every position if I use a trailing stop.

    If anyone has had some experience using a trailing stop, I would appreciate any input or advice you might care to offer.

  2. Crucis


    I use trailing stops only on equities and only once I've reached my breakeven point. For options, I use a contingency. If the price of the parent stick reach a chosen level, I use that to trigger a buy/sell as appropriate.
  3. dhall


    I am primarily trading equities. I am trying to find an complex set of orders that I can enter before the market opens every day. You may have seen one of my other posts that has yet to get a response.

    I want to enter approximately 20 orders both long and short every morning before the markets open. Each order would be a market on the open. I think I would like to attach a very tight stop to each parent order also before the markets open.

    I need the stop to be contingent upon whatever price that each parent order has been filled. I also need the stop to become active only after it's parent order has been filled.
  4. craneman


    I sometimes use a trailing stop on swing trades but with equities only. If the position has arrived at my target price I'll often sell half and put a trailing stop on the remainder if I think it may go a little further. I look at the chart from a TA point of view to determine how far back to set the stop. You need to be loose enough allow for regular market fluctuations.
  5. jts


    I use a trailing stop for swing trades but not day trades. I use IB but not their trailing stops. At the end of every day on swing trades I manually adjust the stop if the EOD price is in my favour.
  6. dhall


    Thanks for your responses but I have a plan that I am using right now that I need to enhance somehow. I am in at the open and out within two minutes. Some of the loosing stocks move so fast that if I could somehow control the loosers with a stop of some kind, I could improve performance.

    Thanks very much.
  7. Try calculating the ATR of the individual securities. Then place your trailing stop as a function of that Aeverage True Range, and move it according to the individual securities positve movement (trail it according to the ATR).

    How to calculate the Average True Range:
    ATR (Average True Range) - price average true range indicator
    ATR is a market volatility parameter. This indicator frequently reaches high values during price drops accompanied with "panic sellouts".

    ATR - is typically a simple moving average of true ranges TR for a certain number of periods:

    ATR = MA_type (TR, Period), where TR is a positive number determined as the greatest of three components:

    Differences between maximal and a minimal price for the current period.

    Module of difference between the previous period's closing price and maximum price for the current period.

    Module of difference between the previous period's closing price and minimal price for the current period.

    One of the following moving average types can be used to smooth the price true range: EMA, SMA, TMA, WMA.

    Low indicator values frequently correspond to lengthy periods of horizontal movement, which are observed at the price tops and during consolidation. It can be interpreted by the same rules as other volatility indicators. The principle of forecasting with this indicator is formulated as follows: the higher the indicator value, the higher probability of trend reversal, the lower its value, the weaker the trend's direction.

    Parameters by default:
    MA_type =SMA - moving average type for TR smoothing (SMA - Simple Moving Average);
    Period=14 - moving average period for TR smoothing.
    Conversely you could try using the good 'ol 20 period SMA (or a lower period SMA for tighter stops).

    Place and trail the stop according to the SMA, when it breaks, that particular trend is usually broken.
    Last but not least, put a Parabolic Stop and Reversal Indicator on your chart and you can literally "see" if it works for you.

    Ninja Trader and other customized trading Apps have trailing stop functionality built into them, experiement with all of the above and see what you come up with.