Trailing Stops

G

gifropan

Most trend following systems recommend you have a trailing stop in order to lock in profits. I often find that if the trading stop is too close the positio9n quite often stopped out before the "meat " of the move occurs. If it is too far, it will give the trade the change to capture the "meat" of the move however a big chunk of the "meat" is given back when the position reversed and gets stopped out. For a long time I have been researching this problem and, although I do recognise that there is to "correct" solution, I think some approaches must be better than others.

Here are one or two of my own ideas

1) Start with a wide stop and gradually reduce the stop value as the position moves into your favour, so that you capture increasing more and more of your profit.

2) Have a predetermined profile level which your analysis indicates that is likely to be hit, take your profit and forget about what might or might come later.

Any ideas from ET members would be appreciated.
 
I don't use trailing stops anymore, I just use regular stops instead. In most cases I set the stop a little lower than some important technical point such as a 50MA, 10MA, ATR or whatever else it may be. In most cases I found out that if I set a trailing stop the position will get stopped out much much quicker than if I was to set a regular stop and then adjust it manually. It's more work and you have to monitor your stocks more often, but it works better for me.
 
I hear what you say, but whether you adjust manually or otherwise, the question is this:

If you don't move your stop at all you are likely to loose all your profit if you hold on too lo to the position. So, even if you manually adjust the stops, how much of your profit are you willing to give back before you close the position?
 
Threads about stops always seem to draw alot of "attention"

If I cashed in every tic AFTER I closed every position I'd be EXTREMELY wealthy. Money left on the table doesn't feed the bulldog!!

Test, test, test, If your trying to build the PERFECT SYSTEM I hope you let us know how that turns out. If your trying to make money, test test test and find that optimal signal to exit your positions (without overfitting) and stick with it.

For ME the baseline of ALL my efforts is:

TRADE THE MARKET, NOT THE MONEY

<*)))><
 
Quote from Igor1:

I don't use trailing stops anymore, I just use regular stops instead. In most cases I set the stop a little lower than some important technical point such as a 50MA, 10MA, ATR or whatever else it may be. In most cases I found out that if I set a trailing stop the position will get stopped out much much quicker than if I was to set a regular stop and then adjust it manually. It's more work and you have to monitor your stocks more often, but it works better for me.
More...

Have you done backtest to compare the Sharpe ratio of both approaches?
 
Quote from gifropan:

Most trend following systems recommend you have a trailing stop in order to lock in profits. I often find that if the trading stop is too close the positio9n quite often stopped out before the "meat " of the move occurs. If it is too far, it will give the trade the change to capture the "meat" of the move however a big chunk of the "meat" is given back when the position reversed and gets stopped out. For a long time I have been researching this problem and, although I do recognise that there is to "correct" solution, I think some approaches must be better than others.

Here are one or two of my own ideas

1) Start with a wide stop and gradually reduce the stop value as the position moves into your favour, so that you capture increasing more and more of your profit.

2) Have a predetermined profile level which your analysis indicates that is likely to be hit, take your profit and forget about what might or might come later.

Any ideas from ET members would be appreciated.
More...

Both of these approaches can lead to the danger of data-mining, no?
 
I have the same issue.
I realized that if you are intra day trader, you cannot afford wide stop. so what I do is once the trade is profitable, observe the price movement, if the trend is still very strong, then you can widen your profit taken target and at the same time decrease your stop level a little bit. if the trend is running out of steam , you just take your profit.

This is not perfect, but most of time, it protects your profit

Quote from gifropan:

Most trend following systems recommend you have a trailing stop in order to lock in profits. I often find that if the trading stop is too close the positio9n quite often stopped out before the "meat " of the move occurs. If it is too far, it will give the trade the change to capture the "meat" of the move however a big chunk of the "meat" is given back when the position reversed and gets stopped out. For a long time I have been researching this problem and, although I do recognise that there is to "correct" solution, I think some approaches must be better than others.

Here are one or two of my own ideas

1) Start with a wide stop and gradually reduce the stop value as the position moves into your favour, so that you capture increasing more and more of your profit.

2) Have a predetermined profile level which your analysis indicates that is likely to be hit, take your profit and forget about what might or might come later.

Any ideas from ET members would be appreciated.
More...
 
Have you played around with pyramiding?

there are many different progressions that keep upside open while locking in profits with a tight stop. How tight depends on the progression. Its a beautiful thing when you catch a nice run scaling size.

1 1 1 0 2 3 4... or 1 0 1 0 1 0 2 0 4 0 8
 
Quote from gifropan:

Most trend following systems recommend you have a trailing stop in order to lock in profits. I often find that if the trading stop is too close the positio9n quite often stopped out before the "meat " of the move occurs. If it is too far, it will give the trade the change to capture the "meat" of the move however a big chunk of the "meat" is given back when the position reversed and gets stopped out. For a long time I have been researching this problem and, although I do recognise that there is to "correct" solution, I think some approaches must be better than others.

Here are one or two of my own ideas

1) Start with a wide stop and gradually reduce the stop value as the position moves into your favour, so that you capture increasing more and more of your profit.

2) Have a predetermined profile level which your analysis indicates that is likely to be hit, take your profit and forget about what might or might come later.

Any ideas from ET members would be appreciated.
More...



Knowing when to take profits is the "taboo" of trading. Every trader does what they deem the best. You mentioned trend following, but didn't mention a time frame.... knowing when a trend is ending isn't always easy when your "riding the wave." Profit targets can be very frustrating, most all of us have seen prices trade a tic or two from our target and then retreat and never return. Leaving money on the table IS A JOKE. I would invite anyone to think of the money left on the table.... left on the table..... Left there to be picked up in the NEXT trade!!! Beating myself up over what the market did AFTER I closed my position never did me any good. I said, beating myself up... studying the price action is VERY helpful.

I'm a believer in developing a trading system (edge). I also believe the system should tell me when to exit. Systems only predict the data caused by nonrandom movement (trend). Therefore, when the data (prices) turn random the system (indicator(s) alert my exit.

A MA crossover "could be" an exit alert or the contracting spread between a F&S stochastic. Momentum indicators are another area to be explored as are "the bands". The beauty of system generated exit signals is they can be tested without user discretion.

Food for thought;
You have a 6m bar intraday trend following system. You get a long signal and enter at even, the market moves up through 30, 40 and at 50 30 minutes later prices hit resistance and begin to consolidate your exit signal "flashes" while the bar is "painting" and you exit the trade. The bar closes up and the signal NEVER comes and the market moves on WITHOUT YOU!!! Waiting for a 6m bar to complete can seem like an eternity, however testing will instill in you the confidence in the system and it's consistency.

I don't want to get into a pissing match with the locals here so I'll say I'm not suggesting a single indicator as an exit tool. Maybe a combination of two or three. I am suggesting a look into indicators as a testable mechanical exit strategy.

<*)))><
 
You must log in or register to reply here.
Back
Top