Trailing Stops

Discussion in 'Strategy Building' started by kut2k2, Jun 6, 2005.

  1. kut2k2


    I keep seeing nightmare stories of a specialist or a market maker deliberately dipping a price down to trigger a trader's trailing stop, then bringing it back to the previous level. Apparently these shenanigans are legal. :mad:

    But there must be a cut-off point, right? Does anybody know how far the manipulators will go, but no farther? Also, has anybody ever had this happen to them when using the chandelier stop? TIA.
  2. Pullbacks that in retrospect were just gamed by the "powers that be" look not much different in the beginning from pullbacks that turn into big reversals. That's the idea I guess; you'll just need to find a consistent method that matches your reasoning for entry and gives enough room for your trade to fully play out.
  3. kut2k2


    Thanks, illiquid.

    So will anybody answer the questions? Is there a cut-off point? Is the chandelier safe? Please respond.
  4. Hi:

    As with most questions asked here, you could answer yourself by just taking a moment to think about it.

    The answer is that no stops are safe. What professionals do is to characterize the price action in the specific market they work in.

    The way you do it is to look at the trades you make and at how price moves after you are filled. You want to determine the size of the "maximum adverse move", and then you want to determine how long a positive move continues until there is a change in trend.

    Because the size of the "maximum adverse move changes" periodically as a function of volatility, you have to adjust your stop from time to time. Many professionals analyze weekly data and adjust stop size based on that result.

    You have some work ahead of you

    Good luck,
  5. kut2k2


    Hi, Lefty

    The chandelier is a volatility-based stop that is self-adjusting. That's why I asked about it. I'm surprised it hasn't been discussed more in this forum. I would be surprised if there is typical "gunning" of someone using a chandelier but it would be nice to know if anyone here has experienced such a thing. Thanks for replying.
  6. Yes I realize that the "chandelier" changes stop size. Chuck LeBeau did an excellent job with it.

    My comment is the same.

    Running the stops works because folks don't do their homework.

  7. kut2k2


    So are you suggesting that I reoptimize the multiplier on a weekly walk-forward basis?
  8. I do it every Sunday night. In addition, I look to confirm or re-adjust 30 minutes after the open, and/or to account for the release of economic reports.

    I am not saying its easy to do. Firms devote a lot of resource to forecasting volatility and how it will change intraday. I simply wanted you to have a perspective on it, rather than blind faith in a stop someone else developed.

    Good luck tomorrow and in the future.

  9. kut2k2


    Your "maximum adverse move" threw me off. Why didn't you just say Maximum Adverse Excursion (MAE)?

    That's cake to optimize, real-time:

    multiple = max(MAE/ATR)_wins