Anyone uses trailing stops for their trades? I was bit badly last week due to the sea of red that the NASDAQ was last week. Many of the trades I had, however, would have yielded a profit as they were in the green for quite some time, but I did not exit Up until last week, I was working with "mental stops", which had been working quite well. Any exit I did was manual, after I feel that the movement up/down was "exhausted" in the charts: that is, the trade wasn't moving anywhere. I only kept a stop loss for when "the market goes to shit moments", that I roughly calculated at a 30% downturn of my initial entry. Many of these STOPS kicked in and prevented me from losing a lot more money than what I finally did, but the positions were GREEN for such a long time, and I fucked up by not taking profits. For context: my trades are short-medium term: couple of days to couple of weeks. But nothing more than 3 weeks out. So yeah, experiences last week kinda suggested to me that what I am doing is not best. For two reasons mainly: 1) I always have the chance of letting the winners become losers. How often have I seen the trade go in my direction, be up by 40%, even 60%, but I just think: "nah, it can go higher". And I don't get out. So, yeah, not doing ANYTHING after having the trade move so well in my direction seems very stupid. HOWEVER, I also don't want to my winners short. But in a way, I still need to protect this profits. 2) As the position becomes bigger and bigger, the % loss becomes a lot higher and higher. For example, let's say I get into stock A at 100. And I have a stop-loss at $80. My capital loss is capped at $20 (20% of the position) (for now, let's assume that the STOP order always executes, although this is not always the case in practice). If the trade goes very well in my favor, let's now say that the stock is at $150... If I keep my STOP at $80, I am now risking $70 in my position -> 47% of my position! So, this lead me into looking into ways of protecting my profits but still not cut away the upside, and I came across the trailing stops. How I am thinking of implementing is just pick a % number that I think matches the volatility of the security quite well and setting at that point my TRAILING STOP. So, the TRAILING STOP still acts as a "worst case scenario" type of situation, but it moves in tandem with the security, so my profits suddenly become a lot more protected. For example, let's take WORK today as an example, and let's focus on the small rally before the close after around 14:40: As we can see, it's pretty smooth on the way up, although there are some small pullbacks. Now, here is how I would enter the trade with a trailing stop: 1. Buy the security (in my case, I entered with a call), and set a "let's not blow up our account" STOP. For example, I put a STOP at 50% of the initial position, as I know that movements in options can be very volatile. This STOP really is there only to protect me in fast markets / prices gapping quickly. 2. Monitor the trade, if it begins to show a bearish sentiment, cut losses quickly. NOTE: this "cut losses" mechanism is different than the initial stop in step 1. It's based on what I see in the chart and about the sentiment surrounding the stock. This "cutting losses" should, in principle, take me out of the trade way before the depreciates by anything near 50%. 3. If the trade goes my way, I would never set an automatic "take-profit", since I don't want to cut my winners short. BUT I do want to lock-in profits that I make, specially if they are substantial. -> So then, if my position goes up by a pre-determined threshold, say 30%, I will start adjusting my STOP upwards at, say, 10% downside of the current price. This 10% would be based on the volatility of the security--10% seems fine for options on an upwards trend with WORK. This STOP would lock in ~17% of the profit (1.3*0.9). If it continues going up, I continue moving the STOP upwards (thus trailing it). If my profits begin to become better and better, I would also adjust the trailing STOP to be more aggressive: e.g. 7% instead of 10%. And so on... 4. I either get stopped out, but the trailing STOP ensured that I was never risking too much of my gains. Or I say that the move is exhausted and the stock does not seem likely to go anywhere based on the charts and sentiment, in which case, I exit myself. Ofc, I would love to see the charts the whole day and follow the movements as much as I can to have the best execution in/out. But, well, I also have other things to do besides trading. This is why I am looking for ways of partly automizing the decisions I make. Moreover, it also takes a little bit away of the emotions of it. I am not agonizing about letting a winning trade go: the trailing STOP kicks in before the position turns against me and I am left holding an empty sack. So, that's another way it helps. Just wondering if you guys did anything similar to this^
Take,a look at Quantshare(or Amibroker) and backtest a portfolio of chosen stocks and run simulations with different stops,trailing stops,profit targets etc... For shits and giggles,optimize the levels and then run WFA.. It's the only way to get a decent idea of how stops/trailing stops affect performance.. Keep an eye on MAE and MFE as well as risk reward stats...Not the Holy grail,but it should answer all your questions
I split my positions and have two to three exits when in profit besides the max stop-loss. First logical scale out, second resistance scale out and third a trailing stop for a shot to get to the moon.
Great technique, I use a similar approach. Often I'll use several entries to scale in, then a tight trailing stop on most of the position and loose lod stop for remaining shares. Good post by OP
%% Prefer partial profits, weekly more or less + moving averages + stuff; dont know if that works with options. BUT even with good trending ETFs; I dont plan on risking 47% as you noted. But on an inverse[bear move etf ], I tend to get all out+ may get back in again. YOUR macd may help you, as long as you have a get back in plan...……………………..
Trailing Stops are the saw that cuts both ways. They will also take you out of a performing trade far too early. This is especially true for swing trading. Use scales.
I look at 15, 18 and 21 tk trailing stops P/L over 500 ES and GC trades vs. a fixed 15/18/21 tk tgt/stop trade. Fixed tgts made far more in my system that trailing stops.
Exact opposite, almost always trail and almost never use fixed targets because price goes where it wants not where we want it to.