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Entering into a trade with a trailing stop order?
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Entering into a trade with a trailing stop order?

  #1 (permalink)
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Entering into a trade with a trailing stop order?

Dear Fellow Traders,

What do you think about opening a position with a trailing stop order? (Is it possible at all, in general, or this is so special that only some softwares or brokers allow it?)

I think there are at least two possible cases when this would be good to use:

ē A swing is forming against the prevailing trend / trend of the day, and once there is a given magnitude in the opposite direction what is corresponds to the prevailing trend, you want to enter.
ē There might be a Central Bank intervention with an effect of a several hundred pips movement, and you want to enter when this movement starts to form against the actual trend.


Is it possible to place a trailing stop order to open a position in NinjaTrader? How?

What do you think about this concept?

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  #3 (permalink)
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Arpad View Post
Dear Fellow Traders,

What do you think about opening a position with a trailing stop order? (Is it possible at all, in general, or this is so special that only some softwares or brokers allow it?)

I think there are at least two possible cases when this would be good to use:

• A swing is forming against the prevailing trend / trend of the day, and once there is a given magnitude in the opposite direction what is corresponds to the prevailing trend, you want to enter.
• There might be a Central Bank intervention with an effect of a several hundred pips movement, and you want to enter when this movement starts to form against the actual trend.


Is it possible to place a trailing stop order to open a position in NinjaTrader? How?

What do you think about this concept?

Fixed Stop

Whenever you enter a position you should have a stop somewhere to avoid a larger loss. When the position moves in your favor, you can choose to trail or not to trail it. A stop order needs to be stored somewhere. This can be done on the exchange (this is called hard stop), or it can be simulated by your broker, or it can be simulated by NinjaTrader.

If the stop is held on the exchange you can be sure that it will be executed. If the stop is simulated by the broker or by NinjaTrader there is a connectivity risk. If the connection between broker and exchange is interrupted, the broker held stop cannot be executed. If you are disconnected from the broker or exchange, your locally held stop cannot be executed.

In my opinion it is best to transmit the stop order to the broker and avoid local simulation. So you will know that it works even in case that your internet provider fails. NinjaTrader will typically transmit your stop order directly to the broker, so it is not held locally. An exception are stop order that require a stop price and a volume trigger. These are non-standard, which means that they are not offered by brokers, so they are simulated locally.

Trailing Stop

The trailing stop is very useful. Some brokers offer this feature, but with NinjaTrader typically the trailing is done locallly. To trail the stop NinjaTrader allows you to use an ATM (Automated Trade Management) strategy. You can predefine these strategies and save them. Also you can divide you position into three parts, for example, if you enter a long position to buy 3 contracts, you can trail each of these contracts in a different way. Please read the help guide and the video explaining ATM.

This will happen, if you use ATM. When you enter a position, NinjaTrader wil generate a fixed stop, which is transmitted to your broker and the exchange. When the position moves in your favor, NinjaTrader will adjust this stop, that means it will cancel the old stop order and send a new one to the exchange, when the nexr price level has been reached as per your trailing stop.

Notice that some exchanges/broker have an execution fee and an order fee, so you might pay an additional order fee for each of these orders (usually the order fee is waived against executions).

This will give you both the safety of a hard stop, which is exchange held, and the adjustment of this stop, which is done by NinjaTrader via ATM.

Automated Trading

If you use NinjaTrader as a robot for executing fully automated strategies - not to be confused with the semi-automatic ATM -, you can do whatever you want,which includes simulating simple stop orders. Discretionary traders will see those always sent to the broker.


Last edited by Fat Tails; February 4th, 2011 at 03:58 PM.
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Trailing stop order TO OPEN a position -- opening a position BY a trailing stop order

Thanks Fat Tails,

Your answer was utterly helpful and comprehensive, as always. Thank you.
However, you have misunderstood me. Maybe itís my fault; I wasnít clear-cut enough.
Maybe my idea is a little bit unusual. This is it:

I am flat. I have no positions at all.

I want to enter into a position, or phrasing it in another way, I want to initiate a trade, or I want to open a position by a stop order, a trailing stop order (if such exists). I donít want to open a position and place a corresponding stop order to protect myself; instead I want to enter into the position with the help of a trailing stop order.

The price is rising, and I want to open a short trade when the price starts to change its direction and starts to decline.
Until that, I want to trail the price upwards from letís say a 50 pip distance. If the price starts to decline, my stop order doesnít trail, stays in place, and once the price declines 50 pips, my short position gets opened. If the price follows its way upwards, my stop trailing it from a 50 pip distance.

So, this means, I want to place a sell stop trailing stop order to open the position.
Is it possible in general, or this is so special that only some software or brokers allow it?

I think there are at least two possible cases when this would be good to use:
A swing is forming against the prevailing trend / trend of the day, and once there is a given magnitude in the opposite direction what is corresponds to the prevailing trend, you want to enter.
There might be a Central Bank intervention with an effect of a several hundred pips movement, and you want to enter when this movement starts to form against the actual trend.


Is it possible to place a trailing stop order to open a position in NinjaTrader? How?

What do you think about this concept?

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  #5 (permalink)
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Answer
This post has been selected as an answer to the original posters question Answer

If you want to use a trailing stop to open a position, it is possible. It means that you enter a position, when volatility increases in the direction of the intended trade.

For example you can use the SuperTrend indicator and wait for a breach of the stop line, which is an ATR offset calculated from the median of price.

However, you will find no predefined order type available with brokers or included with the Automated Trade Management (ATM) of NinjaTrader. You will either have to follow you indicators manually, or code a fully automated strategy, which could be executed via NinjaTrader.

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How does SuperTrend indicator work? -- NinjaTrader Chase function?

Thanks, Fat Tails.

Iíve tried to find a description about how the SuperTrend indicator works, but didnít succeed.
It look like as if it trails the price. Does it actually trail the price as if it were a trailing stop?
Can I set the distance between the price and the indicator line?

Anyway, there is a Chase function in NinjaTrader under ATM. However, NinjaTrader chases only a limit buy order placed below the current market price, not a STOP market sell (or STOP limit sell) order placed below the current market price.

Regarding the concept, I suppose, you donít particularly like this trade entry method, at least not only by itself, do you?

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Arpad View Post
Thanks, Fat Tails.

I’ve tried to find a description about how the SuperTrend indicator works, but didn’t succeed.
It look like as if it trails the price. Does it actually trail the price as if it were a trailing stop?
Can I set the distance between the price and the indicator line?

Anyway, there is a Chase function in NinjaTrader under ATM. However, NinjaTrader chases only a limit buy order placed below the current market price, not a STOP market sell (or STOP limit sell) order placed below the current market price.

Regarding the concept, I suppose, you don’t particularly like this trade entry method, at least not only by itself, do you?

You are absolutely right. The SuperTrend indicator trails the price as if it were a trailing stop.But there are some differences.

If you trail a long position, you would use a fixed offset from the current high to calculate your new potential stop value and compare it to the previous value, then use the higher of both. The SuperTrend is in two ways different:

-> first it does not use the high of the bar as a reference, but the median of the bar
-> second the offset is not a fixed amount, but adjusted to current volatility, as it is expressed as a multiple of the ATR

But you may well describe the SuperTrend as a volatility adjusted trailing stop.

Now there are many Supertrend Indicators around. Some of them have the Median in the original formula replaced with all sorts of moving averages, and some do calculate the offset with more elaborated methods, taking into account anything from lunar constellations to market breadth, but in the end it comes back to an adjusted trailing stop.

The potential that lies in the Supertrend indicator is that its trend definition is exclusively based on volatility. So you may get interesting results, if you combine it with other indicators, which define the trend through a longer term momentum.

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