In my limited experience, on 3 contracts I always moved my stop to my entry price (or a tick below) once my first profit target on 1 contract was hit (4 ticks on the ES).
If this was the correct thing to do every time I don't know, but in some cases it didn't give much room for the market to breathe and I would get stopped out before the market continued onwards towards (what would have been) my next price target.
If the market stayed moving and I didn't get stopped out (@B/E or a tick below) then I would move to 1 tick above my entry once the second price target was hit (8 ticks). Then the final contract could be my runner for 12 or more ticks and I would move my stop to lock in at least 1 point of profit if the market retraced or reversed.
I am not sure if this type of trailing method is right, wrong or indifferent but would be interested to hear opinions...
Last edited by JonnyBoy; April 17th, 2012 at 11:57 AM.
Your profile says you use Tradestation, well thatís the perfect tool to answer your question, model your trading strategy or if you donít program, simulate trading using your trading method and see the effect the stops have on it.
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I find with my strategies a trailing stop only helps me emotionally. In hard stats I find it better to never to move a stop. But that is with what I do. I cannot speak for every strategy. I think important thing is to test a strategy many different ways and see what gives you best results. It is really the only way to know what works on a particular strategy.
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How about a dynamic stop based on market price action, and your reading of the market.
It is the hardest answer to master, but I think you need to be flexible to be a good trader.
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You're taking "fixed stop" to mean a set number of ticks yes? Is that what you meant @mannya ?
Personally I think I go with the general consensus, trailing is fine, but not the usual trails that brokers offer (x ticks away). This is because I don't want my stop to move to a technically (from a T.A. PoV) insignificant point. So in an uptrend, move stops to below higher swing lows etc.
Similarly, initial stops shouldn't just be x ticks away, but below a level.
This post has been selected as an answer to the original posters question
Although, I should probably not weigh in to deeply on this discretionary trading subject. I agree with Mike in that stops should not be determined by a fixed amount or fixed tick trail. Volatility being a large component, and also the ability to let trades run when you get a good one. To get the runners a simple suggestion would be to widen your stop based on a percentage of your gain.
Ex. Initial trade with 2 lots, initial target and runner. Numbers used are for ease of calculation, not an actual suggestion and this idea may not be suitable for certain trading styles.
2 point stop ( should be looked at from a volatility perspective )
5 point target
At initial target first lot is sold, stop is converted to trailing stop on the runner lot with 2 points plus 20% of current gains. You could use a fixed percentage of the gain if you choose instead of the X + % of gain.
2 + (0.2 * 5) = 3 point trail to start with.
If the runner get to a 10 point gain.
2 + (0.2 * 10) = 4
At 17.5 point gain.
2 + (0.2 * 17.5) = 5.5
Effectively your trailing condition shifts the time frame and duration of your trade as it unfolds if market conditions warrant. Otherwise you get stopped. You are giving yourself breathing room for larger and larger retracements as the trade gets more and more profitable, by doing do you are opening yourself up for larger and larger gains.
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Similar to Big Mike's answer - the best answer I have heard is from Linda Rascke. Her point was unless you are trading a pattern from which big moves might arise (basically a large consolidation pattern) you are better off trading for a fixed target. On the times where the chart pattern suggests a bigger move then trail a stop.
You have to know what kind of move you are trading for - e.g. trend continuation, trend reversal, range trade etc.
So your read on what's happening in the market comes first then your tactics follow from that.
IMHO moving stops to b/e is generally done for psychological reasons not an attempt to maximise profits.
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do you use the matrix in tradestation? this has been a revelation to me. what i do now is have a preset stop for every contract i trade then as soon as it goes green, which now that i have discovered you *can* get filled at the bid is *much* more often, i drag the stop up to one price point below the lowest bidder. this is not perfect and i have gotten stopped out early from some major moves. like today in aapl puts sigh. but you know what? it's not a disaster. you can just put an order in to get back in somewhere near where you got stopped out. if it fills, it fills. your trade may be more patchwork that way but that's not a disaster. i think Big Mike's concept of stop based on price action is good. see what other people are bidding on the matrix hover near the bidders but not too close.
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