Calculating Trailing Stops

D

davidrousseau

I'm trying to set up a system that employs tight trailing stops for minimum capital loss. I'm using percentage stops with around 20 stocks which are pretty diversified.

The ideal scenario is a tight (.5 percent) stop that targets stocks that gap up, then limits losses, and sells the rest. Some charts indicate the need for 1 or two percent, but I would have to scale down the position size to control capital loss.

I expect this plan to stop out quite a bit, but it seems like it might be viable. Anyone tried this ? Several systems use 20 percent stops, and there's also stops below support, but they generally seem to create greater capital loss depending on the stock.

I'm grasping at straws a bit, but myt trade costs are very low, so I can have 20 to 30 stocks active and hope that several are winners. You can probably guess I hate losses, and have a problem seeing negative numbers when a stock drops even though I think the stock should be strong.

In the current market, the big money rules the roost, and what should happen often doesn't. What I think is usually the contrarian indicator. :(
 
If you're using so tight stops I suppose you enter on breakouts. How do you manage your stops once you're in? Do you convert them in trailing stops? Are you daytrading, swing trading? How did you decide on .5%? Have you backtested it, have you paper traded it?
Quote from davidrousseau:

I'm trying to set up a system that employs tight trailing stops for minimum capital loss. I'm using percentage stops with around 20 stocks which are pretty diversified.

The ideal scenario is a tight (.5 percent) stop that targets stocks that gap up, then limits losses, and sells the rest. Some charts indicate the need for 1 or two percent, but I would have to scale down the position size to control capital loss.

I expect this plan to stop out quite a bit, but it seems like it might be viable. Anyone tried this ? Several systems use 20 percent stops, and there's also stops below support, but they generally seem to create greater capital loss depending on the stock.

I'm grasping at straws a bit, but myt trade costs are very low, so I can have 20 to 30 stocks active and hope that several are winners. You can probably guess I hate losses, and have a problem seeing negative numbers when a stock drops even though I think the stock should be strong.

In the current market, the big money rules the roost, and what should happen often doesn't. What I think is usually the contrarian indicator. :(
More...
 
Quote from davidrousseau:

I'm trying to set up a system that employs tight trailing stops for minimum capital loss. I'm using percentage stops with around 20 stocks which are pretty diversified.

The ideal scenario is a tight (.5 percent) stop that targets stocks that gap up, then limits losses, and sells the rest. Some charts indicate the need for 1 or two percent, but I would have to scale down the position size to control capital loss.

I expect this plan to stop out quite a bit, but it seems like it might be viable. Anyone tried this ? Several systems use 20 percent stops, and there's also stops below support, but they generally seem to create greater capital loss depending on the stock.

I'm grasping at straws a bit, but myt trade costs are very low, so I can have 20 to 30 stocks active and hope that several are winners. You can probably guess I hate losses, and have a problem seeing negative numbers when a stock drops :(
More...

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Davidro;
.5% sounds to tight for sure swing/position trading on NasdaQQQ stocks;
and good idea testing it thouroughly,
but that sounds like too tight on NasdaQQQ stocks.

And may want to, perhaps you already have;
measure different size gaps, because on strong/long stocks,
some of the best and brightest market makers/specialists gap them up and the strongest stay up, -close up some times.

Also another hint in the right direction, keep on my chart a parabolic stop & reverse, buts its not used in a mechanical way.
[Didnt want to go long , for example,on former DAL, an airline, stayed short or flat.

Wisdom is profitable to direct:cool:
 
I haven't gotten good enough to backtest that strategy, but because I'm trading about 10 to 15 percent of my entire worth, I tried the tight stops this morning. It was both a success and a failure, if that makes sense. A third of the stocks gapped up and stayed up, making up for the small loss on the 2/3 that stopped out. The failure was that most of the stocks that stopped out eventually went back up, some pretty substantially, suggesting the stops are way to tight.

I appreciate the comments, and since I'm still learning this game, I haven't learned how to back test a particular stop percentage, at least not automatically. I think I have the tools to do it, but I haven't learned how to test the effects of stops.

I sense that I am acting like its too big of a deal to lose one or two percent of my capital, and although I would term my trading a combination of swing, momentum, and daytrading, there is no one fit's all approach. I guess I need to look more at backtesting.

I guess I rationalize the tight stops due to the toppy condition of the market, when that same fact seems to create wild swings. If I had better conviction of where a stock was going, then I would loosen my stops.

Thanks again, and if anyone wants to give me some hints on how to backtest stop positioning using Cybertrader or Telecharts, that would be great. Thanks for being patient. If you guys have Computer issues, I'm better at those than trading :p
 
If you're computer savvy you can try Wealth-Lab.com for backtesting.

To test your stops you could also use one of the free virtual trading sites, or paper trade. This way you could open as many positions as you want without risking money. A drawback is that you'll not test in multiple market conditions. To do so you could download some free historical data (i.e. from Yahoo!) and backtest your approach on it, manually or writing a relatively simple program to do it.

A couple weeks ago I started an ET thread about Money Management (position sizing). There you may find some useful information about how much to risk on each trade.
Quote from davidrousseau:
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Thanks again, and if anyone wants to give me some hints on how to backtest stop positioning using Cybertrader or Telecharts, that would be great. Thanks for being patient. If you guys have Computer issues, I'm better at those than trading :p
More...
 
Quote from davidrousseau:

I'm trying to set up a system that employs tight trailing stops for minimum capital loss. I'm using percentage stops with around 20 stocks which are pretty diversified.

The ideal scenario is a tight (.5 percent) stop that targets stocks that gap up, then limits losses, and sells the rest. Some charts indicate the need for 1 or two percent, but I would have to scale down the position size to control capital loss.

I expect this plan to stop out quite a bit, but it seems like it might be viable. Anyone tried this ? Several systems use 20 percent stops, and there's also stops below support, but they generally seem to create greater capital loss depending on the stock.

I'm grasping at straws a bit, but myt trade costs are very low, so I can have 20 to 30 stocks active and hope that several are winners. You can probably guess I hate losses, and have a problem seeing negative numbers when a stock drops even though I think the stock should be strong.

In the current market, the big money rules the roost, and what should happen often doesn't. What I think is usually the contrarian indicator. :(
More...


If you find your stops are too tight, you could look at trading fewer stocks with wider stops. Look at your results and see if some stocks exhibit a better pattern than others in your current 'universe'. Then just trade these ones with wider stops (backtesting will allow you to arrive at a suitable stop) that will give you about the same heat.
 
What is your time frame in which you are using .5% stops?

Have you ever investigated volatility based stops?
 
davidrousseau, Does you broker offer just "trailing stop (market)" or "trailing stop-limit" as well?
 
Quote: I'm trying to set up a system that employs tight trailing stops for minimum capital loss. I'm using percentage stops with around 20 stocks which are pretty diversified. UnQuote
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Hello David
Since your just looking for a method, I'll suggest setting your stops a bit below the PDL (previous day low) by looking at an intraday chart... say 10 days with 10 minute bars. Use Prophet net charting website, if needed... Skip charts that show lots of chop... or too much $ between PDL and current price.
good luck.. keep us posted. agpilot
 
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