Trailing Stop - Best Strategy?

[bhupe]

I am spreadbetting in IG Index.

What is you guys opinon on the best trailing stop level on positive positions?

I am currently up on my positions but I am unsure where to put the trailing stop?
The Trailing stop requires two information:
Distance:
Step: (%)

I had a original fixed stop loss order on my position, but now want to change it to trailing stop.

I do not want to be excessively greedy neither do I want to be excessively afraid of what might happen next so could the more experienced traders on this forum give me some idea as to how much points away from the opening level should I keep the my trailing distance and trailing step from the opening level?

Many thanks,
bhupe

 

[Jason101]

Hi,

It might be helpful to mention what type of trader you are, your time frame and the general principles of your entries, a chart might help.
A swing trader, a trend trader and a mean reversion trader would probably all look at exits in different ways.

 

[forker]

Trailing stop is a nice thought in principle but ultimately results in lost opportunity. There is a well known phrase in this industry that far to many don't seem to grasp or simply don't accept it's truth. Let the winners run.....
Now depending on your granularity that you operate within the market this holds true to the point that the market allows. If you trade 15 minute for then you are effectively at the mercy of the range of noise the market typically operates within. That being said this concept still holds true. Price levels are a natural byproduct of the order flow. In the 15 minute timeframe you would need to frame "letting the winners run" in harmony with intraday order flow levels. As price moves and reacts to these levels you need to either take profit or absorb the noise sufficiently until price breaks through.

For a long time I was the trader that took profit but these days I don't and I am far more profitable as a result. The problem with small time frames is that these levels are generally weak and price regularly breaks only to pull back through before it breaks again. This is the slam dunk and it in my opinion is the biggest account breaker for traders that are not focused on risk. Even if you are focused on risk this very regular action is enough to chew away at profits leaving the trader break even at best or more commonly in the red.

The further you remove yourself from the noise the easier it gets to make money but it does translate into fewer trades. "This is totally bad and you can't make money this way" is a common response I get. "You need to be in it every day like the big boys are to make money" is another poplar comment. All these people have something in common. They are either consistently losing or struggling to grow an account with equity swings that are accompanied by top-ups. I know first hand I was one of them.

So in the context of letting your winners run this is how it generally happens for me. I risk 5% per trade which is down to the stop I generally have to place which is usually around 100 ticks. This is necessary as I trade only on the daily time frame. The levels I operate against are vastly more influential than those found in the noise. I set my targets for big hitters which I realise may seem contradicting the winners run phase, but frankly speaking, it's never a case of the market moving one direction for ever so there is an element of that pinch of salt. Between my entry and my target is generally 1 to 2 major levels that hold more than they do in the noise where slam dunks are a daily occurrence. I typically nail 1 runner a month but not every month and that's fine because that runner not only pays for any losers it gives a nice pay packet at the end. Speaking of losers, I might have 1 or none a month with the other trades being stopped out at break even which is a strategy every trader should employ.

I realise this is a long post to bring me to this point.

If you are trading in the noise then you are better served leaving trailing stops aside and aiming for a break even trade to one that has a target within the noise. Very few if any traders can manage their trading in this way and end up with a growing account. Trailing only works when major levels are at play. You will be slam dunked often enough to make it difficult to absorb losses.

 

[Jason101]

"This is totally bad and you can't make money this way" is a common response I get. "You need to be in it every day like the big boys are to make money" is another poplar comment. All these people have something in common. They are either consistently losing or struggling to grow an account with equity swings that are accompanied by top-ups. I know first hand I was one of them.

Or they work in the industry and enjoy the commissions that intra day trading produces.

I also do the dailies and couldn't agree with you more. On occasions, I see the trends I trade on lower time frames but not to often.
Well said and nicely written.

 

[Forexmospherian]

Sorry guys - would have to disagree.

Lets "winners run" is a great phrase - it sound good - especially if you can cut your losses early - but in the forex market - it is just so inefficient.

Trading is like discussing Politics or Religion - we all have our different ideas, beliefs, and even bias - but sometimes you have to just let the facts speak for themselves

I am a experienced retail Intraday short term trader but as part of an exercise - I just left a so called "free trade" on to see what would happen long term. It ended up making just over 1000 pips ( first time ever for me ) on one EJ trade in 2012 - it took ages to complete and whilst it went on for nearly 10 -11 weeks or so - I made so much more profit and pips - scalping and intraday short term trading,

I had been up approx 700+ pips after approx 5 weeks or so - I guessed it still could rise further and let it go back on me over 400 pips to stay with (really silly - should have used a trailing stop - even though that's inefficient ;-)) and then over the next 4 weeks plus in made me the magic 1000 pips - ( small stake and just one of those exercises to see what would happen ) I exited prior to an holiday break - but if i had left it on another 7 weeks it would have made another 450+ pips.

I appreciate if I had concentrated on it daily - pyramiding and peeling i would have made a lot more money - but that was not the point it this exercise as I left it alone with no real MM on it - other than not being prepared to walk away with under 100 pips. (One trade - part stake after exiting from an intraday trade)

I can understand if you are part time and can only spare an hr or two a day - you want minimum trade maintenance - but if you have over 4 -6+ hrs a day to trade - then you would be so much more profitable learning to trade in the "noise" at the coalface - and then make proper returns averages of 30 -50% monthly ( no not with compounding - thats a different problem ) rather than being satisfied with just 5 - 10% per month - and having the odd bad month as well.

Problem is it does take a few years to get there - even full time - and part time you need over 7-10 yrs behind you to have got the 10k hrs screen watching

I would be interested in hearing about your RR ratios on longer term trades - because so many traders make a great 250 or 300 pip winning trade over a few days or week - but have used a 120 -150 pip stop and so the end result is a winning trade with an RR of 2 or if really good 3.

Intraday - a RR of 2 or 3 can be made in normally 30 mins - certainly under an hour - so its pretty obvious you can make so much more money is you can read PA at the coalface than guessing over a 4 -5 days.

Only my view - but it is a FACT - and i would gladly debate with anyone who could prove differently in the retail forex market ;-))

Regards

F

 

[forker]

30% -50% monthly.... You know for someone to makes out to be the top of the game you sure have made a very silly mistake boasting these types of returns. Even if you were consistently at the lower end of that claim you are effectively stating that you double your account very 3 and a bit months making about 300% from your yearly starting capital every year. I am just wondering how you haven't showcased on Forbes rich list or CNBC for that matter. Heck you'd be so rich I would have to wonder what you doing on a retail forum such as this and not opening up your own hedge fund or spending your time accumulating assets. You are effectively achieving monthly what the best out there achieve yearly.

http://www.forbes.com/sites/nathanv...hest-earning-hedge-fund-managers-and-traders/

 

[forker]

I do feel sort of bad for lashing out at you like this and I do apologise for that as you are generally a good guy on here.

 

[Forexmospherian]

30% -50% monthly.... You know for someone to makes out to be the top of the game you sure have made a very silly mistake boasting these types of returns. Even if you were consistently at the lower end of that claim you are effectively stating that you double your account very 3 and a bit months making about 300% from your yearly starting capital every year. I am just wondering how you haven't showcased on Forbes rich list or CNBC for that matter. Heck you'd be so rich I would have to wonder what you doing on a retail forum such as this and not opening up your own hedge fund or spending your time accumulating assets. You are effectively achieving monthly what the best out there achieve yearly.

http://www.forbes.com/sites/nathanv...hest-earning-hedge-fund-managers-and-traders/

See that is where you are totally wrong.

I had mentioned - no compounding - profits are withdrawn through out the month and my lot size stays under a maximum of 12 lots - and the Capital in my own case stays under $70k - and can be as low as $40k - after larger withdrawals

I tried compounding over 4 yrs ago from 5 lots and got up to 22 lots before hitting my own "wall". I could not handle the increased psychological pressure and the larger losses - which where increased after my first "black swan" event of 7 consecutive losses.

It just did my head in - and I had to end up dropping back down to 5 lots to get back in the game and to get my confidence back

I have repeated this before - nobody explains the problems of compounding.

Six months prior to this episode I had genuinely thought I could compound a $100k account up to half a million and then a million - probably under 18 months.

The fact was - I could not - the market and its counterparts beat me - I could not handle losing over $5 or 10 k of my own money in a few trades. It effected my trading and I could not concentrate in my own "scalping zone"

So nowadays - I stay in my own comfort zone - most of my trades are under 1% of my capital - and my first priority is not to have losing days.

That still does not stop me making 30 -50% gains per month on retail size accounts.

On smaller size accounts under say $10k it possible to make more than 50% per month ( as long as you don't keep compounding) - but its obviously not as good as doing 35% per month on a larger $50k account as the net profits per month are higher.

Could I make say 20% per month on a multi million capital account?

More than likely - NO - I would not be able handle 50 -100 lots per pip - and losing up to $50k + on say 3 - 5 consecutive losses etc etc

I suppose it is easier if its not your own money - but there again its a totally different "ball game" - If i lost half of my own capital ( over say 15 -20 consecutive losing trades - and I have not had over 7 in over 9000 trades in last 4 + yrs ) - I can carry on - wounded but hardly that bothered

If i tried the same on a $5 million account and say lost $3 million - I reckon then I would be down either the local A & E - or taken to the local nutters home for therapy ;-)

That again are the facts - believe them or not - I am not really bothered if you still think its impossible. Yes for sure I should try and overcome my "financial wall" that stops me making millions over the next five years - and I would if I was back in my 30's - but nowadays at my age - do I really want palpitations and extra stress every day ??

No way ;-))

Regards

F

 

[Forexmospherian]

I do feel sort of bad for lashing out at you like this and I do apologise for that as you are generally a good guy on here.

No problem Forker at all - You have been kind compared to some of the comments I have received - so please don't worry - as really your general comment is of course true when related to compounding an account etc

Regards

F

 

[bhupe]

Hi Jason,
I am a contrarian/swing trader looking for trend reversal, holding time: anywhere between 15 days to 1.5 year.

What do you suggest the optimum trailing stop?

regards,
bhupe

Hi,

It might be helpful to mention what type of trader you are, your time frame and the general principles of your entries, a chart might help.
A swing trader, a trend trader and a mean reversion trader would probably all look at exits in different ways.

 

[bhupe]

Hi,
Thank you so much for your very helpful post.

I think what you have mentioned in your post really matches with what I have experienced so far. I think you are very right in regards to the intra-day noise.
When I analysed my trading journal, I realised I have predominately lost more on my day-to-day trades than the when my holding position was more than five days.


regards,
bhupe

Trailing stop is a nice thought in principle but ultimately results in lost opportunity. There is a well known phrase in this industry that far to many don't seem to grasp or simply don't accept it's truth. Let the winners run.....
Now depending on your granularity that you operate within the market this holds true to the point that the market allows. If you trade 15 minute for then you are effectively at the mercy of the range of noise the market typically operates within. That being said this concept still holds true. Price levels are a natural byproduct of the order flow. In the 15 minute timeframe you would need to frame "letting the winners run" in harmony with intraday order flow levels. As price moves and reacts to these levels you need to either take profit or absorb the noise sufficiently until price breaks through.

For a long time I was the trader that took profit but these days I don't and I am far more profitable as a result. The problem with small time frames is that these levels are generally weak and price regularly breaks only to pull back through before it breaks again. This is the slam dunk and it in my opinion is the biggest account breaker for traders that are not focused on risk. Even if you are focused on risk this very regular action is enough to chew away at profits leaving the trader break even at best or more commonly in the red.

The further you remove yourself from the noise the easier it gets to make money but it does translate into fewer trades. "This is totally bad and you can't make money this way" is a common response I get. "You need to be in it every day like the big boys are to make money" is another poplar comment. All these people have something in common. They are either consistently losing or struggling to grow an account with equity swings that are accompanied by top-ups. I know first hand I was one of them.

So in the context of letting your winners run this is how it generally happens for me. I risk 5% per trade which is down to the stop I generally have to place which is usually around 100 ticks. This is necessary as I trade only on the daily time frame. The levels I operate against are vastly more influential than those found in the noise. I set my targets for big hitters which I realise may seem contradicting the winners run phase, but frankly speaking, it's never a case of the market moving one direction for ever so there is an element of that pinch of salt. Between my entry and my target is generally 1 to 2 major levels that hold more than they do in the noise where slam dunks are a daily occurrence. I typically nail 1 runner a month but not every month and that's fine because that runner not only pays for any losers it gives a nice pay packet at the end. Speaking of losers, I might have 1 or none a month with the other trades being stopped out at break even which is a strategy every trader should employ.

I realise this is a long post to bring me to this point.

If you are trading in the noise then you are better served leaving trailing stops aside and aiming for a break even trade to one that has a target within the noise. Very few if any traders can manage their trading in this way and end up with a growing account. Trailing only works when major levels are at play. You will be slam dunked often enough to make it difficult to absorb losses.

 

[Jason101]

Hi Jason,
I am a contrarian/swing trader looking for trend reversal, holding time: anywhere between 15 days to 1.5 year.

What do you suggest the optimum trailing stop?

regards,
bhupe

Hi bhupe,

The optimum, would be great, wouldn't it, I would like some of that. I recon the optimum is only possible in hindsight, unless of course you are willing to re-enter if the exit was premature? In which case how important was the original entry?

Do you have multiple stops to peel off parts of your position, say one for break even, another for a swing high profit and another for the long game? If not do you think this may help or hinder you? Do you have multiple entries, maybe through pyramiding? Do you see trading as one trade followed by another trade, or a multitude of positions in one market with position size fluctuating as the the market moves?

Some examples may be - The break even stop is obviously a simple bit of maths. A swing high, is fairly straight forward too, if not a little hit and miss. The longer term could be a break of trend, say a lower high followed by a lower low, or a ma break (or cross) or it could be a break of the opposing Donchian Channel, of which the input of days could change as the trade develops. Or it could be a simple percentage trail.

Like Forker I love to break even ASAP, so no matter what my first portion is set for b/e.
This may be a fault of mine, needing the b/e so my emotions will be able to cope with letting the trade run. I have not checked the stats, because I need to do this to stay in the trade! The b/e portion does not need to be a static stop it can be done on a trail of 0.5 R.

What have you tried and why are you unhappy with it?

 

[bhupe]

Yep, you are right - the optimimum is only possible in hindsight. I think it was a childish question.

To be honest, I have moved but not changed my fixed stop loss to trailing stop for my existing positions. I will rather get stopped with a small profit / breakeven point then let my winners cut short due to intraday noise.

Do you have multiple stops, say one for break even, another for a swing high profit and another for the long game? If not do you think this may might help or hinder you? - I have one fixed stop loss which is close to the aggregrate opening level. If I am stopped out, I will wait and watch the trend and maybe get back again. I have not considered about having multiple stops but I maybe considering multiple limit order to protect the profit.

Do you have multiple entries, maybe through pyramiding? - Yes

Do you see trading as one trade followed by another trade, or a multitude of positions in one market fluctuating as the the market moves? - I see trading more of multitude of positions in one market. I may be long on longer time frame, and yet at the same time short on the intraday basis and vice versa.

regards,
bhupe

Hi bhupe,

The optimum, would be great, wouldn't it, I would like some of that. I recon the optimum is only possible in hindsight, unless of course you are willing to re-enter if the exit was premature? In which case how important was the original entry?

Do you have multiple stops, say one for break even, another for a swing high profit and another for the long game? If not do you think this may might help or hinder you? Do you have multiple entries, maybe through pyramiding? Do you see trading as one trade followed by another trade, or a multitude of positions in one market fluctuating as the the market moves?

 

[Jason101]

And there is always an ART stop.
For the intermediate stop I quite like trailing below the low of the last 3 bars, moving the stop to under the lowest of these three only once the last bar is the highest bar. You should try it, it's very simple ad effective.
You said you pyramid. Often pyramiding and stop moving are done simultaneously, do you move your stop when pyramiding? If so how do you determine when to pyramid?

 

[bhupe]

I actually use ATR stop for my swing trade.

Three bar low trailing stop seems to be good idea but at the moment I am spread betting and the spreads sometimes are too wide to implement it in intra-day trade. I will look into this when I start DMA trading.

I pyramid my position based on the ATR, and the stops for the new position are placed on the entry of the previous entry. The overall stops are placed in such a way that in worse case scenario, I am either break even or down 0.5 - 1% or up 1%-2% of from my aggregate opening level.

Thanks Jason.

regards,
bhupe

And there is always an ART stop.
For the intermediate stop I quite like trailing below the low of the last 3 bars, moving the stop to under the lowest of these three only once the last bar is the highest bar. You should try it, it's very simple ad effective.
You said you pyramid. Often pyramiding and stop moving are done simultaneously, do you move your stop when pyramiding? If so how do you determine when to pyramid?

 

[usman7290]

In my opinion trailing stops are only helpful in high volatile markets and rallies, otherwise I prefer manual trailing be moving my stop from one important level to another important level and I have found this very helpful.

 

[bhupe]

Good strategy.

In my opinion trailing stops are only helpful in high volatile markets and rallies, otherwise I prefer manual trailing be moving my stop from one important level to another important level and I have found this very helpful.

 

[neil]

'Kinell

I prefer using trailing stop as day to day trader, It helps to bring winning in my trade, It helps to take in profit quietly, especially when the market is moving in your direction. You can place it above the market price when you are in short position and then place it below the market price when you are in long position.

As a Trading System Vendor and MICRO Account trader - what percentage of your (Micro) trading pot do you risk per trade?

"It helps to take in profit quietly, especially when the market is moving in your direction. "

If the market is NOT moving in your direction then you cannot take profit quietly or noisely - right ?