Trailing stop/Initial stop on futures

C

cornholetrading

I am new with futures but have traded stocks for awhile. I have been experimenting with initial stops and trailing stop for trading ES futures because I have found them to be a different beast then stocks. With stocks I am able to read the specialist to help determine exits or initial stops. However with futures it is a little different. I have an excellant strategy for picking trades for the index futures which is more of a intraday position trading style or basically a nonscalping approach. My winners will have targets from 2-8 points or so, depending on the trading conditions. My initial stops have been 1.5 points and a 2 point trailing stop. However I am trying to find a better method for both. What has happened is that when I lose I end up losing 1.5 points but then some of the winners get stopped out before they really move for me. For instance it will go up 1.5 points from my entry, pull back and stop me out for a .5 point loser then move up another 5 points. In part because of my strategy, I will be in a trade when it is just breaking out of a congestion zones, but the action can still be choppy at these times and I don't want to get stopped out before the real move. Lately there has been moves where I am right I direction but the move itself is choppy so I have a harder time sitting in the trades with out getting stopped out.

What are some other trailing stop and inital stop strategies being used by some experienced futures traders here that might be more intune with prevailing market conditions? Do the stop amounts vary depending on the present volatility or current volume levels or are they a ridged amount? I am trying to come up with the best method of course to minimize loses, but allow me to stay in my winners for the longest time until they hit my target or change course (hitting trailing stop). Also any ideas on where to look on this topic for other ideas would be great.
 
I used to use even -6 ES pts for an initial stop for targets of 6-9 and greater. The trailing stops were pretty liberal too, I would move to +2 after 6, to +4 after 8 with the final target at +9. Now I am using -5 or -4 for the initial stop depending on the system, and trail differently, -3(after 2), -2(+3), -1(+4), +2(+6), +4(+8) with targets at +6 and +9 for one of the systems. I use 2 contracts for that. The systems are completely mechanical.
 
Quote from wally_:

I used to use even -6 ES pts for an initial stop for targets of 6-9 and greater. The trailing stops were pretty liberal too, I would move to +2 after 6, to +4 after 8 with the final target at +9. Now I am using -5 or -4 for the initial stop depending on the system, and trail differently, -3(after 2), -2(+3), -1(+4), +2(+6), +4(+8) with targets at +6 and +9 for one of the systems. I use 2 contracts for that. The systems are completely mechanical.
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Why the use of such large stops? It seems you are risking 1:1 or slightly better. I am not attacking, just trying to understand why you do what you do.
 
Quote from cornholetrading:



Why the use of such large stops? It seems you are risking 1:1 or slightly better. I am not attacking, just trying to understand why you do what you do.
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:p Corn,

You did just mention that you are getting stopped out right before the trade goes your way.... :)

I use from 2 points to as much as 4 points depending on the setup (average of 3).

I also trade for larger moves (2 to 10 points, 6 average) and not scalps.

I try to keep my risk/reward near 2 reward vs. 1 risk. I think that 3/1 is tough to achieve with intraday range trades on indexes.

But I also try for a 75% hit rate. Which is possible trading indexes.

Hope this helps some - you can PM me if you want more info about the specific stops/setups.

Paul
 
It is an interesting problem and an endless one. I am convinced no system can outperform a fixed stop converted to a trail once price has moved in your favor the distance of the stop.

But that method requires great patience and an unpredictable drawdown.

Method 2 is to stop viewing stops as money management textbook non market related necessities. With this method you use a very wide stop that you never expect to get hit. It is for dire emergency situations and when you do get hit you feel awful. But then you only feel awful about every 4 trades.

Method 3 uses ATR and S/R and I don't know what all. It beats the heck out of fixed mm stop. No question about it.

It goes on and on. I was using 2 pt stops looking for 4 pt targets and hitting about 40%. I switched to 2 tick stops and took anything I could get and hit about 40%.

My best scalping system uses 1 pt targets and 3 point stops. If you go larger than 1 point target I doubt you will find any fixed stop target ratio that works. I never have.

So far with a straight 1 pt trailing stop no target my record is 6.25 pts.

If I accidently get in a good move I use 3 pt trail with 9 point target.

I have one system which uses 1 pt stops. It trades with the trend on a 2 tick pullback at mkt extremes and uses no target. If you survive the entry it is a big r to r trade, but very stressful to trade.

It goes on and on. probably for the average daytrader. No stops other than mkt close would be the best. You can easily check it out by looking at your statement marked to settlement price.

I think about it a lot. Maybe too much. When it comes to money management, the trader is too easily lured into a false sense of security and it's all the stops fault. Well don't look at me! I didn't do anything wrong.
 
oh yeah, I have one that uses 1.75 stops and 2.25 targets. This is the one I use when I don't have a clue. Sometimes I just buy the next even number and sell the next odd. But it is a good one to shake you out of your foolish notions. You can trade it all day and at 50% you still walk away with a decent hourly paycheck.
 
But to answer your question. No, es isn't going anywhere until it shakes everybody out. If you see it moving like a fast train, that's because it is running light with no one on board.
 
It depends on the type of framework you use and in some framework (like discretionary trading) it will sometimes depend on the judgement of the market. If your framework allows to chose a knowledgeable entry point with extreme precision the best is to use a fixed stop - in fact that is one of the reason one use such type of entry: it is to lower the amplitude of risk and lower probability of failure. If it is not the case you have to use probability laws. For example this one:

<IMG SRC="http://www.elitetrader.com/vb/attachment.php?s=&postid=206200">

For example if one suppose a downside trend and knowing that the first minutes are the most important one could use the extreme zone of hourly scale of 856.79 + some margin (I know some traders would even use the daily zone to be sure that they would not be stopped).

As for myself I prefer to chose my entry and use a fixed stop (I use the probability zone for something else : for judging if the potential calculated by some other law is probable or not. For example the lowest we made at 8629 on Dow Jones was one point above the extreme daily probability zone of 8628 although the potential could be lower)

Now for calculation method each trader uses each own thumb rules. Mine is based on general law of probability and does not suppose Normal Law.

Quote from cornholetrading:


What are some other trailing stop and inital stop strategies being used by some experienced futures traders here that might be more intune with prevailing market conditions? Do the stop amounts vary depending on the present volatility or current volume levels or are they a ridged amount? I am trying to come up with the best method of course to minimize loses, but allow me to stay in my winners for the longest time until they hit my target or change course (hitting trailing stop). Also any ideas on where to look on this topic for other ideas would be great.
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Quote from cornholetrading:

I am new with futures...

However with futures it is a little different....

My initial stops have been 1.5 points and a 2 point trailing stop. However I am trying to find a better method for both. What has happened is that when I lose I end up losing 1.5 points but then some of the winners get stopped out before they really move for me...
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Hey Corn,

If you want to survive trading the Eminis or become consistently profitable...

DON'T USE FIXED STOPS NOR FIXED PROFIT-TARGETS.

Why? You won't be able to maximize your profits (letting them run).

Most new traders to the Eminis have too much difficulty with the FIXED stuff.

Only experience traders have a few work-arounds this issue.

Here's a solution,

because we don't really know your trading methodology (use of indicators and such or use of price action alone chart patterns)...

NEVER let a profitable trade become a loser nor breakeven (at least...most of the time...don't let it).

Thus particular subject has been discussed many many many times here at ET.

http://www.elitetrader.com/vb/showthread.php?s=&threadid=12641&perpage=5&pagenumber=8

Here is what I've said in the past about using FIXED stops or FIXED profit-targets while trading the Eminis...

http://www.elitetrader.com/vb/showthread.php?s=&postid=181940&highlight=FIXED+STOPS#post181940

http://www.elitetrader.com/vb/showt...3710&highlight=FIXED+ProfitTargets#post103710

I will go on the record to say this...most traders that ignore the above...either are no longer trading at this time next year or still struggling with this difficult issue.

P.S. My solution isn't the only one out there. Simply, it's a solution that works very very well for me and my style of trading.

Therefore...please read carefully and be open minded to solutions posted by others.

NihabaAshi
 
Here is an interesting situation for discussing this much argued topic.

On Thursday 2-13 I went long at 942 above the high of the 14:15 bar ( 15min ). Now anyone who looks at this chart will admit that I caught the bottom of this recent down move. I exited at 952 ( +10 ) at 15:09. 952 was my profit target as I was looking to exit into the 30min20ma as well as looking for a move of +8-12 points. ( initial top was 1037 under lod at the time )

Now since that entry the market has run 76 points to 1018 where we closed on Tuesday. I cant see how using a trailing stop in that situation would have yielded much more than I got even though I got the BOTTOM of a strong selloff ahead of a sharp rally.

This reinforced my use of profit targets in trading. I would love to have captured more of this move off that entry but I cant see how it was possible or where over the last 2-3 days one could have entered with a reasonable stop ( 4-8 points ) and ridden the move with a reasonable trailing stop.

Am I missing something here guys or do we, as intraday day players, give up the idea of riding for huge moves. Meaning when we set small stops are we destined for small gains ( compared to possible moves ).

Just curious as to others thoughts on this.

AllenZ
 
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