Trailing stop losses

[simcom]

I use trailing stops when I have reached my target exit point and there is still momentum in the trade. I generally get stopped out quite quick but as it has trailed past my exit I feel these extra points are the cherry on the cake. I wound never use them as a strategy and agree a stop loss should never be moved (unless you have to).

I increasingly think that this is the best way to use them (for my own trading, at least). Since IG Index introduced trailing stops I have found there is greater temptation to 'lock-in' my profits only a fraction of the way along a total move, meaning I ultimately end up leaving large sums on the table.

Trailing stops have been a major challenge to my personal discipline of late!

 

[Crap Buddist]

Generally if you don't know what you are doing(or still learning) use a trailing stop as opposed to a hard static stop as you will lose at a slower rate .?

Stop losses do/ are for one thing?, stopping a loss due to an unexpected event? as for using a trailing stop order to exit a directional position punt though ? Terrible idea, as normal market activity will often naturally trade through typical trailing stop order levels during its course of intra/inter day money exchange facilitation.

So if a systematic/ignorant trading approach is adopted by a trader ,use a trailing stop or better use a volatility stop that looks to stop you out as the price rockets in your direction, parabolic type yah ? That will likely be the best ploy for that type of lark.. gets you out with a bag of points and just wait for another systematic setup.

Don't bleat about you being sidelined as the market holds up (and your parabolics stopped you out & given you +40 points) and then the market rockets another +120 higher again, you can't moan about that as you couldn't forsee the event ? And you want to be a systematic trader ,right? not an events based one.....So either Use that time learning,whilst sidelined or just be happy and be systematic..

If you tackle trading based on a process, based on events ,then you'll likely find you stop all trades anyway, and the P or L, is what it is.


What kind of trader do you need to be?
Systematic/ignorant ?
Events/enlightened?
Something else?
How the hell do I know?

Ask of yourself & your path will be true :innocent: No point you trying to be something you don't "have" to be? Do it for you !

 

[shadowninja]

An interesting approach. So, if you're a systems trader, by employing a TSL that moves with news, you're becoming an events trader even if that isn't your style of trading.

Here, have a :idea:.

 

[Crap Buddist]

yah! experience precedes perception until perception precedes the experience.?

 

[shadowninja]

Ok, now you're being too clever for me.

 

[ricktgolf]

Hi all

I am a newbie to the forum, but not a newbie to trading. Am currently using a Turtle-like system for trading ETF's and manually move my stops daily based on ATR and a predetermined exit price. So far this has been working OK but I want to do better (don't we all). So I have been contemplating TSLs and have come here to be enlightened.

My plan is to continue using manual stops of 2 x ATR until my paper gain exceeds my dollars-at-risk + 1 ATR at which time I would employ a TSL of 1 ATR. What this would do is effectively lock in a gain equal to my dollars-at-risk while allowing more upside potential to be realized.

What do you think? Thanks.

Rick

 

[normbeef]

although i am a stickler for a risk free trade i cannot see any point in trailing the stop past a freebee.. apart from once it makes the exit price.. then a few extra quid might come in handy for Xmas if its on the table and i didnt think it was ??

alas i think its designed to catch a greater percentage of the newbie money, not only are the buggers taking all the loosers, they want a greater percentage of the winners too... lol

 

[ricktgolf]

I do not understand why the general feeling here is to not use trailing stops. Maybe somebody can explain the dislike to me. Every broker that I deal with has trailing stops both in dollar form and in % form. Once your target price or profit is surpassed, employing a trailing dollar stop will lock in whatever additional gains might be had at no additional risk. I have seen it where these additional gains were not trivial.

 

[forker]

every trade should have a plan and that means 4 things: entry, stop, trade management, target. i would be very interested to see how traders have a trailing stop as a part of their trading plan. trailing stops are not very useful and probably only work something like 10% of the time. the question is when you reach your final target how many pips profit are you willing to giveup for a stab at something that is most likley not going to work. if your analysis aligns with many traders out there you are guaranteed to get a wave of limit orders at your target area which if you ask me would probably make you lose more pips than you make in the long run because of the buffer you need to give it in order to give it a chance to work. too close and you are just wasting time and a few pips every time, too long and you will give up all those pips most of the time.i cant see a typical trader gambling away pips already made for an unlikley event. well not an experienced one anywayd

 

[JRP2891]

I agree SN, i personally don't think they're a good idea for swing traders. If you've bought at 10 with a trailing stop of 5, and the price goes to 50 with your stop still 5 away, then that doesn't reflect a proportional increase in stop ticks to price to let your winners breathe which will result in you being stopped out on the most minor of retracements the higher it goes. Price action based stops or trailing stops worked out on % retraced are more effective in my opinion.

 

[ricktgolf]

I guess I am in the severe minority then because the extra points that the TS has brought me once past my target especially on my larger trades have been well worth the price of admission. I agree that a % TS is probably better than a price TS in that it will increase as warranted. If one wants to forgo the automatic resetting of TS, then I still think that priced based ATR trailing stops are the best way to go - they take into account volatility and price. The downfall is that they are not automatic and have to be manually set/reset.

 

[moreliver]

I have to say guys that this thread is helping me out no end. I took a break from betting last year after being whipsawed out of too many decent bets. I basically gave up on managing the volatility. I needed to review my strategy anyway, as I was just getting to grips with working in a volatile trendbusting market, having been working a trend-based strategy before the Gordon Brown hit the fan.

I am reviewing my stoploss decisions and looking for alternatives. Taking severe spreadbettors' slippage into account, I was clearly trailing stoplosses far too close to recent prices and got caught in the wash every time the market all dashed to the other side of the boat. I'm going to try a wider stoploss but would like a trailing method. Any views? Something based on Average True Range might be in the frame here, as someone has already suggested on this thread, as a method that takes volatility into account. Please bear in mind I'm spreadbetting UK stocks days to weeks.

 

[Dacamic]

My exit rules tend to be technically-based and symmetrical with my entry rules, e.g., enter on MACD cross-above and exit on MACD cross-below. I use percentage trailing stop losses as a safety net for instances when the exit rules suffers too much lag. The "safety nets", however, are loosely set (approximately 2% of equity) and trigger exits for less than 10% of my trades.

The basic question is reasonably straight-forward to answer: use trailing stop losses if they improve your performance. They helped my results, but that doesn't mean they will do the same for all people or all systems.

 

[moreliver]

Thanks for that Steve. MACD crossover and a trail based on percentage equity loss. Anyone else?

 

[Pound foolish]

HMMM.......... inetresting for a newbie like me who has seem the blue on the portfolio statement for the first time this year!

I too, are considering a Stop Loss to "LOCK IN PROFITS". However, as some of the thresds said, if you sell at the stop and later see the price recover and go on you either then have to buy at a higher price than your stop to get back in or watch and look at the mistake you made!

My question, and I suspect everyone's answer will be the different is what Stop Loss do you set?

If you set it too high the shares could be sold on the next days trading and you could miss out, if you set it too low what was the point of the trade in the first place? Certainly a break even Stop Loss is somewhat pointless.

My problem is that as my trades ar normally small at £700 to £1000 each. A buy and sell trade attracts costs of £25 for the trade and stamp duty on top, so locking in profits of less than £100 maybe even less than £150 hardly seems worthwhile.

However, I am driven by the thought that the market could well dip again in the summer before another rally in the autumn and I woudl like to buy at a low again to repeat these gains.

My current thinking is to set a Stop Loss when the share hits a 40% gain set it at 20% gain.. That way I have 20% for day movement, but if it dips further I can get the 20% and buy again when the price hits my original entry level.

:clap:

 

[Chorlton]

HMMM.......... inetresting for a newbie like me who has seem the blue on the portfolio statement for the first time this year!

I too, are considering a Stop Loss to "LOCK IN PROFITS".

If you are using a Stop Loss to only lock in profits, what exactly are you using to exit a trade in other circumstances?

However, as some of the thresds said, if you sell at the stop and later see the price recover and go on you either then have to buy at a higher price than your stop to get back in or watch and look at the mistake you made!

Why is this so wrong? Why can't you buy back in?

Certainly a break even Stop Loss is somewhat pointless.

And how have you derived this? Through back testing, studying of many charts or is this just opinion based?

My problem is that as my trades ar normally small at £700 to £1000 each. A buy and sell trade attracts costs of £25 for the trade and stamp duty on top, so locking in profits of less than £100 maybe even less than £150 hardly seems worthwhile.

Depends on your win rate. I'd be happy to keep grabbing 150GBP for each trade entered if the frequency of trades and win rate was high.

My current thinking is to set a Stop Loss when the share hits a 40% gain set it at 20% gain.. That way I have 20% for day movement, but if it dips further I can get the 20% and buy again when the price hits my original entry level.

Personally, I would avoid using percentage stops as they have no relevance to the characteristics of how a particular stock is moving.

 

[Dacamic]

Personally, I would avoid using percentage stops as they have no relevance to the characteristics of how a particular stock is moving.

I tend to agree with this thought, yet there is still value in using percentage-based stops for the rare occasions when prices are moving unfavorably more quickly than technical-based signals can react. If my memory is reasonably accurate, technicals trigger at least 90% of my exits and percentage stops handle the remainder.

 

[Chorlton]

I tend to agree with this thought, yet there is still value in using percentage-based stops for the rare occasions when prices are moving unfavorably more quickly than technical-based signals can react. If my memory is reasonably accurate, technicals trigger at least 90% of my exits and percentage stops handle the remainder.

Valid Point.... However, the difference between yourself and Pound Foolish is that you have based your decision to use them on actual historical events/testing, and have (in your circumstances) proved that they offer some advantage.

I would suggest that most beginners (once they actually decide that they need a stop!!) immediately gravitate towards this type of exit as they are popular, easy to implement and control, without investigating other alternatives....

 

[moreliver]

My question, and I suspect everyone's answer will be the different is what Stop Loss do you set?

I'd been setting stop losses as part of trade entry at a point several ticks away from current support or resistance, and trailing the stop exit until stopped out. If I wanted to take profits or just became uneasy with the trade I'd move the stop up close and let myself get stopped out if the price did the dirty. Of course, whenever it didn't I had locked in profit on a well-behaving price. Great in trending markets and saved my butt at the bend in the end in 2007. Not so great in chop. Nicolas Darvas, who pioneered the method, made his wonga by trading a big bull run.

I'm liking the idea of using a multiple of ATR, and lacking any backtesting facility I'll be paper-trading that idea for a bit to see if it does what I want where I intend to use it.

 

[bfirth]

HMMM.......... inetresting for a newbie like me who has seem the blue on the portfolio statement for the first time this year!

I too, are considering a Stop Loss to "LOCK IN PROFITS". However, as some of the thresds said, if you sell at the stop and later see the price recover and go on you either then have to buy at a higher price than your stop to get back in or watch and look at the mistake you made!

My question, and I suspect everyone's answer will be the different is what Stop Loss do you set?

If you set it too high the shares could be sold on the next days trading and you could miss out, if you set it too low what was the point of the trade in the first place? Certainly a break even Stop Loss is somewhat pointless.

My problem is that as my trades ar normally small at £700 to £1000 each. A buy and sell trade attracts costs of £25 for the trade and stamp duty on top, so locking in profits of less than £100 maybe even less than £150 hardly seems worthwhile.

However, I am driven by the thought that the market could well dip again in the summer before another rally in the autumn and I woudl like to buy at a low again to repeat these gains.

My current thinking is to set a Stop Loss when the share hits a 40% gain set it at 20% gain.. That way I have 20% for day movement, but if it dips further I can get the 20% and buy again when the price hits my original entry level.

:clap:

Pound foolish have you looked at CFD'S to saves on the stamp duty ig markets L2 platform is ok i used it a bit before moving to futures. .5% dossent seem much but it starts to add up, over time. anything that adds to the blue