Gaining an edge with Trailing Stops!

R

Remiraz

How to gain an edge trading with trailing stops. :eek:

This is writtened with respect to trading the Euro.

1) Use any indicators. Preferrably a Trend Following one like Exponential Moving Average (EMA).

2) Set Take Profit targets and Stop Loss targets large enough to avoid the Market's House Edge.

http://www.elitetrader.com/vb/showthread.php?s=&threadid=53586

For this strategy i recommend profit targets of 30-50 ticks/pips.

3) Whenever you're in profit by 15-20 ticks/pips, shift your Stop Loss to breakeven. Whenever you're about 10-15 ticks/pips away from your profit target, shift your Stop Loss to lock in current profits.

Analysis

You will either:

1 - Get stopped out on your initial stop.
2 - Get stopped out at breakeven.
3 - Get stopped 10-15 ticks away from your profit target.
4 - Take profit.

Normally if T/P and S/L targets are set, a player with no edge will have total profit = total losses and get chipped to death by commissions. However, because you trail your stop, many losses will not get realised and thus give one an edge.

Comments, corrections and additions please go ahead! :D
 
Quote from Remiraz:

1) Use any indicators. Preferrably a Trend Following one like Exponential Moving Average (EMA).
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Until you get over 1), the rest is meaningless. Fiddling with stops won't give you an edge if you didn't have one beforehand. :eek:
 
Yes you're all correct.

What we're aiming for here are those big trends often seen in the Euro. Trends that go straight up or down with little retrace.

For those that doesn't (chop, retrace etc) we'll either scratch it, breakeven or exit with a little profit.
 
Quote from Remiraz:

How to gain an edge trading with trailing stops. :eek:

This is writtened with respect to trading the Euro.

1) Use any indicators. Preferrably a Trend Following one like Exponential Moving Average (EMA).

2) Set Take Profit targets and Stop Loss targets large enough to avoid the Market's House Edge.

http://www.elitetrader.com/vb/showthread.php?s=&threadid=53586

For this strategy i recommend profit targets of 30-50 ticks/pips.

3) Whenever you're in profit by 15-20 ticks/pips, shift your Stop Loss to breakeven. Whenever you're about 10-15 ticks/pips away from your profit target, shift your Stop Loss to lock in current profits.

Analysis

You will either:

1 - Get stopped out on your initial stop.
2 - Get stopped out at breakeven.
3 - Get stopped 10-15 ticks away from your profit target.
4 - Take profit.

Normally if T/P and S/L targets are set, a player with no edge will have total profit = total losses and get chipped to death by commissions. However, because you trail your stop, many losses will not get realised and thus give one an edge.

Comments, corrections and additions please go ahead! :D
More...


I like your explanation. I use stops in a similar way that you describe. I have found that usually your losses will be bigger than your wins but you make up for that with a higher winning %. For me, a strategy like that is alot easier to trade because you have alot of winners. But on the other hand like someone else pointed out sometimes you will get stopped out at a small profit or b/e and it will go on to your profit target but those are the risks that you must take when trading that way.

Eric
 
Quote from Remiraz:

What we're aiming for here are those big trends often seen in the Euro. Trends that go straight up or down with little retrace.
More...

How does setting a trailing stop help you capture a big trend?

If you happen to catch a move that goes straight up or down, it really doesn't matter if you leave your stop at a loss, breakeven, or trail. All you are doing by implementing indiscriminate trailing stops is lowering the chances that you stay in a big move. If you manage to stay in a big trend, it will be despite your trailing stop, not because of it. A trader whose objective is to capture the largest moves keeps his stops as wide as possible.
 
Quote from illiquid:

How does setting a trailing stop help you capture a big trend?

If you happen to catch a move that goes straight up or down, it really doesn't matter if you leave your stop at a loss, breakeven, or trail. All you are doing by implementing indiscriminate trailing stops is lowering the chances that you stay in a big move. If you manage to stay in a big trend, it will be despite your trailing stop, not because of it. A trader whose objective is to capture the largest moves keeps his stops as wide as possible.
More...

The stop IS as wide as possible.

I trade with 30-50 pips take profit. Currencies trend 20-100+ pips non-stop all the time with a little retrace (10 pip retrace maybe).

The initial stop is at about -30 pips. I say if the market turn against you 30 ticks in FX its as good as telling you u're wrong.

The next trailing stop is at breakeven point when the trade is 15-20 pip in my favor. If the market breakout 20 pips then retrace all the way back to original starting point then i guess it really isn't a trend.

The final one is near my profit target.

The goal is to know what i'm hunting (trends) and cut losses as much as possible when the market is not behaving as i wish.

Its like upping the stakes on a good BlackJack hand. This increases the edge for the BlackJack player as well. (If he is following the standard strategy he will increase it to a -0.5% edge without card counting)
 
I thought this thread was adding the element of a trailing stop vs a straight up SL -- in that case, the trailing stop is a progressively tighter stop and not as wide as a pure SL left upon entry.

Nevermind then :)
 
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