what is a trailing stop-loss?

This is a discussion on what is a trailing stop-loss? within the First Steps forums, part of the Reception category; Good afternoon, Well, here goes - my first post! I am fairly new to trading, and have been trying to ...

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Old Jun 12, 2003, 3:01pm   #15
 
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Joined Jun 2003
Good afternoon,

Well, here goes - my first post!

I am fairly new to trading, and have been trying to educate myself through research and seminars (One recently with Sr. Member NAZ - the Daytrading TA course - which was EXCELLENT, by the way)

Despite having done some paper trades, combined with some real trades, I am still not clear on how best to set my initial stops and then trailing stops.

There seems to be several approaches when setting the initial stop (before trailing):

1) Use 7-8% below price movement

2) Use a set amount of cash, determined by the size of your account. ex., Never lose more than 200 (on an account worth 10k)

3) Stick to a percentage (ex., 2% of your account)

Is one method more popular than any other?

If your stock moves up, would it be advisable to use that same % in most cases as your trailing stop, or should the stop be 'loosened' up after locking some profits?

The problem seems to be - especially on Nasdaq stocks, I will get myself stopped out too often with such tight stops.

I assume it has a lot to do with the size of one's trading account. Until I become more experienced, I will most likely swing trade (Nasdaq/NYSE) with an account of 10-15k, so my gut instinct is to set a stop goal so I never risk more than 2% on the initial trade.

Can anyone advise what approach might be best for me for both the initial stop and then the trailing stop?

Thanks!
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Old Jun 12, 2003, 5:13pm   #16
 
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Joined Apr 2003
Hi blyon

As usual there is no one answer.

A lot depends on what you're trading and also you're typical holding period in time.

Also your own pain threshold will come into it.

I day trade the Dow and find that 25pts is quite good, I also use the centre line of Bollinger Bands after a good run (assuming I make one)
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Old Jun 13, 2003, 11:11am   #17
 
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Joined Jun 2003
Thanks Beyonder...

I suppose that I should continue to paper trade for a while longer until I determine what feels right. I think what I am finding is (like you mentioned) it depends on what you are trading.

I was under the impression that many traders had one method that applies to all their trades, but after speaking to other traders, I now understand that isnt the case, and that I will most likely have to be flexible depending on the type of trade..

...still learning! thanks for the input
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Old Jun 13, 2003, 3:55pm   #18
 
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Joined Feb 2003
When you line up to trade, you have a reason. ie you're maybe looking for 30points. You have have decided why you want to enter. Has it broken a trend line, is it running into resistance, have your MAs crossed, or whatever your analysis has shown you. You MUST have also worked out at what point you're wrong. So when does the market say your analysis is wrong? If it's more $ than you're comfortable with, then it's not your trade.
You must know your "out", your loss, before you enter!

Good luck
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