# Trailing Stop Loss



## pavilion103 (11 March 2011)

Has anyone found that there is a "more" ideal % range from current price to put an initial stop loss?

Obvously 2%-5% would see you stopped out a lot

Over 10% would see you not make a lot of profit unless a big movement. 

I know it depends on the overall system and how often you need to be right, but I'd love to get people's thoughts on if there is a range that seems to work best (i.e. 5%-10% for example)


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## tech/a (11 March 2011)

pavilion103 said:


> Has anyone found that there is a "more" ideal % range from current price to put an initial stop loss?
> 
> Obvously 2%-5% would see you stopped out a lot
> 
> ...




A trailing stop loss is different from an initial stop.
My testing over the years has shown the following for portfolios.
(1) 2-8% too tight more trades but no more profit.
(2) 8-12% seems to be the sweet spot.
(3) 12-20% less trades similar profit but opportunity cost as many stocks range in the 12-20% range of the stop zone for sometimes months.

If you think about it on an account where your having 10 trades in your portfolio and a 10% stop your risking 1% each trade.
Trailing stops are a whole new topic.


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## ginar (11 March 2011)

tech/a said:


> A trailing stop loss is different from an initial stop.
> My testing over the years has shown the following for portfolios.
> (1) 2-8% too tight more trades but no more profit.
> (2) 8-12% seems to be the sweet spot.
> ...





not a huge fan of trailing stops in the traditional sense , as a chartist i need my stops to be strategic , this is from a traders guide i use 



•	Price action always dictates the stop goes, then compare to notes and decide if it's something you should take or not.
•	Stop needs to be strategic for whatever reason but strategic, not some fixed number.
•	Protect capital with small losses and break even trades while adjusting stops in your favor, never against it. (Never loosen a stop)
•	Assuming long, when the price runs in your favor, consider placing stop below the low of last 2-3 bars, reverse for short.
•	Placing at break even is just a common saying, using the lows of previous bars is much more astute.
•	Once trend line established, move stop to protect capital, use the TL for placement guidance.
•	Initial stop placed at time of trade for security reasons. ALWAYS
•	After order fill, adjust stops strategically base on support/resistance and/or complacency levels.


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## tech/a (11 March 2011)

ginar said:


> not a huge fan of trailing stops in the traditional sense , as a chartist i need my stops to be strategic , this is from a traders guide i use








> •	Price action always dictates the stop goes, then compare to notes and decide if it's something you should take or not.




Systems which I have developed dont use "strategic stops".They aren't necessary in my experience.



> •	Stop needs to be strategic for whatever reason but strategic, not some fixed number.




Why? I think this is more to do with feeling good about a stop placement that any tested feedback--please be my guest if you have any---a 10% stop is ample ---if a stock doesn't take off in that grace area of 10% chances are your initial trigger has failed.



> •	Protect capital with small losses and break even trades while adjusting stops in your favor, never against it. (Never loosen a stop)




In discretionary trading I agree.



> •	Assuming long, when the price runs in your favor, consider placing stop below the low of last 2-3 bars, reverse for short.




One method.



> •	Placing at break even is just a common saying, using the lows of previous bars is much more astute.




why?
Do you have test results that prove "more astute"?



> •	Once trend line established, move stop to protect capital, use the TL for placement guidance.




One method. But hes after an initial stop.



> •	Initial stop placed at time of trade for security reasons. ALWAYS
> •	After order fill, adjust stops strategically base on support/resistance and/or complacency levels.




Everyone does this you'll get hammered.
Can you elaborate on a Complacency level?


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## Wysiwyg (11 March 2011)

pavilion103 said:


> Has anyone found that there is a "more" ideal % range from current price to put an initial stop loss?



Don't you think it is relative to trading time frame. If intraday trading the trailing stop loss would be different from weeks to a few months trading time frame. The securities "volatility" is worth investigating.


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## Wysiwyg (12 March 2011)

Wysiwyg said:


> Don't you think it is relative to trading time frame. If intraday trading the trailing stop loss would be different from weeks to a few months trading time frame. The securities "volatility" is worth investigating.



Uhh, caught me there 
	

	
	
		
		

		
			





. It is either initial stop loss or trailing stop from my perspective.


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## AlterEgo (12 March 2011)

tech/a said:


> A trailing stop loss is different from an initial stop.




It doesn't need to be. Initial stop can simply be the value of the trailing stop at the time of entry. I'd be interested to know your reasoning as to why you need 2 different types of stops. Have you found that to give better results?


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## tech/a (12 March 2011)

AlterEgo said:


> It doesn't need to be. Initial stop can simply be the value of the trailing stop at the time of entry. I'd be interested to know your reasoning as to why you need 2 different types of stops. Have you found that to give better results?




Yes your right you certainly can do that.
In fact most of my exits are a trailing stop (Discretionary trading). My answer was and is based upon separate Initial stop value which I thought was the question.

I set position sizing to an initial stop value and in discretionary trading I set it to a technical level (as Ginar explains) But if its not in the range 2-12% then I pass up the trade. I Dont use "Traditional" Support /Resistance either particularly when trading index futures---you'll get hammered.


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## AlexG1 (17 March 2011)

This thread has been dead for a while   So I hope somebody is listening still.

What's the best platform to use for a trailing stop?  I'm currently with Comsec and I know you can set them here, but was wondering if there are better/cheaper platforms to do this in.

I've been following mostly a value investing and income generating philosophy and haven't really been looking at trailing stops.  However some of my experiences suggest that using them is probably a good idea.  One stock in particular took a pretty big dive and whilst it's coming back well now, if I'd had a stop I could have dived out and bought back in at a sizable discount.  So I'm interested in starting to use them.

What were peoples experience with using these things during the GFC?  How well do they work in a panic selling environment.  Presumably they can take a while to execute when the whole world is selling.  So how far can/do they fall below your target point?

Thanks,
          Alex.


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## tech/a (17 March 2011)

> What were peoples experience with using these things during the GFC? How well do they work in a panic selling environment. Presumably they can take a while to execute when the whole world is selling. So how far can/do they fall below your target point?




A very good question which has an equally interesting answer---atleast from me.
Dont have the time now but will post charts and commentary to help in the discussion.

Basically as a Trade moves into profit I will only *TIGHTEN* a stop when it runs away exponentially OR it begins to go into a Distribution/Accumulation pattern.

You need to know what your looking at (chart wise) is a retracement/correction/or impulse change in sentiment against you. This will allow you to set the best trailing stop---without this knowledge then the stop is set (Generally) at a most recient pivot or you use an ATR like stop.
With the knowledge you know with out question that if price acts in a certain way your looking at either retracement/correction/or impulse .I dont use ATR or the like stops--trailing or otherwise.

Its worth gaining the knowledge.

On March 7th I had 18 positions on Monday I had 11 on Monday night I had SPI and FTSE short hedges.
I now have 3 open positions and 3.5% portfolio drawdown.(Not that anyone is interested in that info!!).

Charts on Weekend ---Santana tonight.


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## pavilion103 (19 March 2011)

Im having a play around with trailing stops. At the moment I've got a basic 2xATR trailing stop.

I am curious as to how most people trail there stops. 

How much profit are people prepared to give back in terms of R multiples. For me I'm comfortable with about 2R, but I'm thinking that maybe it is stopping me out of trades early but then sometimes I feel it's working ok. I'm not sure how this compares to most people.


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## AlexG1 (20 March 2011)

Hi Techa,
             thanks for your response - was wondering if you'd had time to grab those charts yet   Not trying to be pushy as I can see you are busy all over the site, just hoping you'll note the activity on the home page and have your memory jogged.

Alex.


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## tech/a (20 March 2011)

Yeh some interesting Analysis threads going.

I use a number of price patterns to alert pending changes in sentiment.
PEN was one which consolidated and looked toppy.
I posted  #1004 chart on 7/03/11

https://www.aussiestockforums.com/forums/showthread.php?t=5004&page=51

The rest is history.
If you also look back on the XAO thread I saw the top in around 22/02 and tightened my stops on all stocks in the portfolio then. I only hold 3 of those in my portfolio 13 or so were stopped out. I had a draw down of 2.5% Friday night (In the portfolio) then got hit on the FTSE 100 FUTS adding another 4%--Gadaffi!

Single bars may cause me to exit.
Pivot point reversals will have me set a stop at the bottom of the bar making the signal.
Island reversals the same.
Here are some example I use them for both buy and sell signals They can be used in any time frame.






 Ill throw up more charts as time goes by


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## pavilion103 (31 March 2011)

I've enjoyed trading my simulator with a 2xATR stop and it seems to be going ok, but I can't help but think there must be a better trailing stop to use. I'm thinking I do want to be using one with volatility so that I don't get stopped out by "noise". 

Does anyone have any advice to point me in the right direction?


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## TabJockey (10 April 2011)

pavilion103 said:


> I've enjoyed trading my simulator with a 2xATR stop and it seems to be going ok, but I can't help but think there must be a better trailing stop to use. I'm thinking I do want to be using one with volatility so that I don't get stopped out by "noise".
> 
> Does anyone have any advice to point me in the right direction?




I am trying to do the same thing, I want to calculate a stop to keep me out of intraday noise. The best method I have found so far is looking at the stock and just counting how many intraday ranges of 10% or more. If there are too many then I stay away. This is because I need my systems to be EOD based and not need intraday exits and entries to be profitable (even though attention here would clearly improve results).

One thing I am experimenting with on paper is a "tightening" stop. After a 10% gain the trailing stop halves in %, and after a 16% gain it halves again. This seems to have the effect of "normalising" returns, for example when applying tightening stops, the best historically performers expectancy drops by about 30% because the huge wins are chopped off but the mediocre performers improve by about 20%. Overall expectancy goes up.

Anyone tried this sort of thing? how did it work for your system?


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## pavilion103 (12 April 2011)

I am still using a 2xATR stop. 

My problem seems to be that I identify breakouts and they shoot up to 2R or 3R, but then my 2xATR stop seems like a long way away from price. I end up losing at least 1-1.5R and most of my profit evaporated. Frustrating!


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## TabJockey (12 April 2011)

pavilion103 said:


> I am still using a 2xATR stop.
> 
> My problem seems to be that I identify breakouts and they shoot up to 2R or 3R, but then my 2xATR stop seems like a long way away from price. I end up losing at least 1-1.5R and most of my profit evaporated. Frustrating!




Did you even read my ****ing post? Try halving your stop at 2R!


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## skc (12 April 2011)

TabJockey said:


> Did you even read my ****ing post? Try halving your stop at 2R!




If he halved his stop at 2R it would still be at 1 ATR below entry and he would be giving back 2.5R when that stop is hit.


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## pavilion103 (12 April 2011)

My bad. 

Do you think tightening a stop from 2xATR to 1xATR is too much? (i.e. is a 1xATR stop too close to price, where it will be stopped out by noise?)

I don't even know if 2xATR is a good stop in the first place or if it should be 1.5xATR!

I am going to test this because I am getting frustrated with giving back too much profit.


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## pavilion103 (12 April 2011)

skc said:


> If he halved his stop at 2R it would still be at 1 ATR below entry and he would be giving back 2.5R when that stop is hit.




My stop is trailed behind price though not entry? It would be 1xATR from price wouldn't it (not entry)?


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## TabJockey (12 April 2011)

skc said:


> If he halved his stop at 2R it would still be at 1 ATR below entry and he would be giving back 2.5R when that stop is hit.




Did you even read my ****ing post? tightening, trailing stops.

Yeah I have manually back tested 2 x ATR stops at buy, 1 x ATR stop at 3R and then .5ATR stop at 4R. 1xATR works pretty well, it does not really trim my wins by too much, but the .5ATR stop definitely does.

Another thing I was looking into, because I always sell on the open, sometimes I miss great instraday opportunities. Putting a conditional sell in at 5R at open from the onset has interesting results...expectancy drops a tini bit, but expectancy PER DAY rises by quite a bit.

Try testing out some different values for your own system to see what works best, are you manually back testing or amibrokering it?


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## pavilion103 (12 April 2011)

TabJockey said:


> Did you even read my ****ing post? tightening, trailing stops.
> 
> Yeah I have manually back tested 2 x ATR stops at buy, 1 x ATR stop at 3R and then .5ATR stop at 4R. 1xATR works pretty well, it does not really trim my wins by too much, but the .5ATR stop definitely does.
> 
> ...






I use Amibroker to do my explorations to scan stocks. 

As far as testing goes I am manually testing. This is because enter based on technical indicators (looking at Volume Spread Analysis at the moment) and am a discretionary trader. 

I've only been trading a sim for a month. What I have also started from tonight is going back to say 12 months ago for example and entering trades based on the signals I am getting now and then using the "bar replay" function to see how the trade pans out. 

Any suggestions?


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## TabJockey (12 April 2011)

Rightio, I love manually backtesting bar by bar. I am working towards a 90% mechanical system so I probably cant help you much with what you are doing.


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## pavilion103 (12 April 2011)

TabJockey said:


> Rightio, I love manually backtesting bar by bar. I am working towards a 90% mechanical system so I probably cant help you much with what you are doing.




No worries mate. I'm getting a feel for the market and price action at the moment so toughing it out. I will also begin working on a manual system in time, as I want to have multiple systems. 

Thanks for the help with the trailing stop though. I think that will make a big difference for me.


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## pavilion103 (13 April 2011)

I am looking to place my trades in the last 30 mins or so of the trading day. Do you think I should set a stop loss, which if activate during the day, then I am stopped out? Ot should I wait until the end of the day and only stop myself out of it closes below (or above for short) the stop?

This is what happened today in my sim.


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## tech/a (13 April 2011)

I personally use the close for EOD trading.
If Im monitoring a stock which has a weak pattern and it breaks that pattern intra day (Which is my stop loss---I dont use an indicator) Ill sell as soon as its violated.

You'll find you get swings and roundabouts.
Some like today may continue.
Others will fall lower before you sell at NEXT open.

But until you test your method over 1000s of trades as in systems test it.
You wont know.


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## TabJockey (13 April 2011)

pavilion103 said:


> I am looking to place my trades in the last 30 mins or so of the trading day. Do you think I should set a stop loss, which if activate during the day, then I am stopped out? Ot should I wait until the end of the day and only stop myself out of it closes below (or above for short) the stop?
> 
> This is what happened today in my sim.
> 
> View attachment 42394




You need to have stops active all the time to stop yourself getting wacked by unexpected news. You might have great success for a while deciding only on the close prices but you open yourself up to the risk of a bad 1 day drop. 

The way I look at it you have to set a limit to your risk at all times, then the only thing that can get you is gaps. Capital Preservation at all costs!

also remember trailing stops never go down, they lock in place like a ratchet, so in that trade you posted you still would have captured a good part of the trend, I would consider it a success. If you get >50% of a decent move its a success in my books.


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## TabJockey (13 April 2011)

And another thing, have an exit plan that isnt your stop. For example in one of my systems I sell on the open after the first MACD tick down which is usually the top of a down day, and close to yesterdays close. I have tested with profit targets but I find that it always reduces expectancy for me. Nothing like a 50% windfall once in a while but if you have a conditional sell at 20% profit you never get there.


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## pavilion103 (14 April 2011)

TabJockey said:


> You need to have stops active all the time to stop yourself getting wacked by unexpected news. You might have great success for a while deciding only on the close prices but you open yourself up to the risk of a bad 1 day drop.
> 
> The way I look at it you have to set a limit to your risk at all times, then the only thing that can get you is gaps. Capital Preservation at all costs!
> 
> also remember trailing stops never go down, they lock in place like a ratchet, so in that trade you posted you still would have captured a good part of the trend, I would consider it a success. If you get >50% of a decent move its a success in my books.




What do you think about having a wider intra-day stop, which will be activated if things really start to get messy, but then have my regular end of day stop which I execute on the close?

This will obviously ensure I protect my capital but at the same time giving it the opportunity to bounce back during the day as with the stock above, if the weakeness doesn't hold?


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## TabJockey (14 April 2011)

pavilion103 said:


> What do you think about having a wider intra-day stop, which will be activated if things really start to get messy, but then have my regular end of day stop which I execute on the close?
> 
> This will obviously ensure I protect my capital but at the same time giving it the opportunity to bounce back during the day as with the stock above, if the weakeness doesn't hold?




I think thats a great idea


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## tech/a (14 April 2011)

I only activate a trailing stop when.

(1) The trade is in maturity. (this can be seen buy a rough wave count.)
AND
(2) Weakness is clear in price action.

Ill use single bars and pattern failures.
Much tighter and not a random average of some sort.

I really dont think about trailing a stop until at least 5-10:1 R is reached.
You'll never get big runs if you place a trailing stop straight up.

Bringing your Initial stop to even then 1 R is or should be a goal of every trade/r


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## TabJockey (14 April 2011)

tech/a said:


> I only activate a trailing stop when.
> 
> (1) The trade is in maturity. (this can be seen buy a rough wave count.)
> AND
> ...




Whats your average trade length?


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## tech/a (14 April 2011)

Varies quite a bit.
Days to a month tops.

But if a market is trending like it was back 200 to 2007
I traded Tech trader system for years---trades were average hold 380 days.
I haven't traded it since 2007.
Discretionary much shorter.
Index trades are often minutes to hrs and when I'm really confident a day or 2


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## pavilion103 (14 June 2011)

Does anyone know of any good books which is either largely focused on trailing stops/exits or has some strong chapters on it?

Thanks


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## tech/a (14 June 2011)

Stops are an integrated methodology in line with conditions set for a trading system or method.
You won't find a use this or that practical guide to setting ANY stops.

The key and secret to setting stops in my opinion is the ability through testing to understand the consequences of setting ANY stop using ANY particular method ---be that a technical pivot/ M/A / ATR /Set% random dart or pure guess.

Know how setting which or what at various levels to define best use of YOUR stops


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## TabJockey (14 June 2011)

I guess what you have to focus on is the point in you're strategy when you are "wrong". You are aiming to take advantage of market inefficiency x, buying on signals y and z which indicate a previous high percentage chance of x occuring. The question is, when is it clear that y and z have not predicted x?

It also depends on your exit method, if you have some sort of MA cross exit you might find it gets you out before your stop most of the time. I think the best way is plan your exits, both when you are wrong and right and use stops as an emergency insurance against catastrophic losses. In a system I was working on today my average loss was2.24% with a 10% stop. Sometimes I am stopped out (catching falling knives) but most of the time event x fails to emerge and I exit at a small loss ready for the next yz combo.


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## Boggo (14 June 2011)

tech/a said:


> Know how setting which or what at various levels to define best use of YOUR stops




Along those lines, in the current market I am finding that every stock needs an individual approach that varies depending on individual stock behaviour.

The old approach of a dozen stocks all going the same way with a system trailing stop following behind just doesn't work at the moment (for me anyway).


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## Mistagear (14 June 2011)

Hi Folks,

I think Pav might be open to and looking for different methods, I've been using this quite effectively in a choppy market.
Once into a trade and looking to protect profits as opposed to protecting capital, I'm selling upthrusts and multiples of range swings, rather than wait for price decline back towards a stop. Once an extreme is sold, place a buy-stop beyond the exit to put you back in the trade should price continue.
In current climate, most moves are failing so as price starts to decline from the extreme, trail the buy-stop back down.
Use whatever methods you believe in, personally I trade VSA, to determine whether a re-entry remains wise. 
This method has recently captured better returns than any trailing stop method I have come up with... 
The rider is... works ok in chop but takes more effort, is slightly more labour intensive monitoring price expansion as well as contraction AND you still require a stop to protect capital.
I know, you're saying to yourself "this is not a trailing stop" and you are correct, so dont shoot me for suggesting something slightly different .. I'm happy using it anyhow


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## tech/a (15 June 2011)

Mistagear
Nice to see some excellent out of the square trading ideas and implementation.
You want to be careful you'll find yourself in that 3% of consistent winners.

I think trailing stops should be placed in a similar manner to your use of VSA which also is my weapon of choice in quick moving choppy markets.
The whole idea is to (in my opinion) place them ONLY when you've managed to score a quick un precedented wind fall so you can lock it in wit out giving it all back something like 25 % + in any day or 2 place your trailing stop really tight.
If taken out put IMMEDIATELY on your watch list and re enter if a continuation PATTERN (as opposed to single bar or so) shows up.

Bonjourno from Venice.


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## pavilion103 (15 June 2011)

tech/a said:


> Mistagear
> Nice to see some excellent out of the square trading ideas and implementation.
> You want to be careful you'll find yourself in that 3% of consistent winners.
> 
> ...




What do you think of this? I was having too many 1R losses before so am trying to reduce the risk as soon as possible. 
In the example below I move the stop to a the new point as quickly as possible (I'm not saying this is the best trade but want to discuss my trailing stop).

I've tried experimenting with stops in this way. I'm thinking that if a good trade is a good trade from the start, then if it goes back above that trailing stop it probably isn't worth being in.


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## Mistagear (15 June 2011)

Pav,
Again this is only my personal approach.
Stops initial and trailing are part of the trade selection.
RRL recently had swings lower than 2x 14ATR, this means the extreme highs to extreme lows are quite close and the range of each bar within the swing is relatively wide.
What that means is it reduces the possible reward and increases the risk of being stopped and makes placement of stop more difficult.
I look to buy an already stretched swing, something equal or comparable to other recent swing extremes, so there is greater chance of a another swing in the opposite direction (in conjunction with all my other analysis, VSA S/R levels etc), This way my initial stop can be very close, but if this time the pattern changes I know quickly.
I then try to quickly move my stop to break even and after that I am looking to sell the other side of the extreme, not trying to trail a distance behind the action.
My trading is discretionary according to my analysis, including my exits
I often sell high volume upthrusts which coincide with the recent measured and calculated average swing highs  using an intra day chart to exit on early signs of weakness.
RRL does not currently have sufficient volatility %, swing extremes, bar structure or risk/reward potential to justify an entry for me. 
Sorry I can't help with a trailing stop .

Cheers, M


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## pavilion103 (16 June 2011)

Mistagear said:


> Pav,
> Again this is only my personal approach.
> Stops initial and trailing are part of the trade selection.
> RRL recently had swings lower than 2x 14ATR, this means the extreme highs to extreme lows are quite close and the range of each bar within the swing is relatively wide.
> ...




I guess because I'm fairly new I've simply been looking for patterns and then breakouts without taking into consideration a number of things. 
Slightly off topic but how would you calculate the risk/reward potential of one like this (or any company)? I've read that I'd use the height of the triangle (which wouldn't be much)?
What do you mean by you trade swing extremes? Do you mean as in a range or something? Do you have any examples? 

Cheers


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## pavilion103 (16 June 2011)

I think one problem that I'm having is I am trying to let profits run when it isn't justified. Obviously there are times I need to hold on and set wider stops, but I think I'm trying to make every win a big win and then seeing what would be a good 1R win turn into a breakeven or slight loss. 

Getting a feel for charts and trading it seems to me that I need to have a good reason to be in a trade. Trades which start to show weakness aren't presenting the same reasons to remain in the trade as they did to enter it. Holding and hoping makes me very nervous with no confidence at all.

I think my philosophy will be exit on weakness (e.g. upthrust, pivot point reversal) and then decide if I want to get back in the trade based on how price behaves after this sign of weakness.  An extra $12 in fees is a small price to pay compared to giving back 1-2R profit unneccessarily.


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## Boggo (16 June 2011)

pavilion103 said:


> I think one problem that I'm having is I am trying to let profits run when it isn't justified. Obviously there are times I need to hold on and set wider stops, but I think I'm trying to make every win a big win and then seeing what would be a good 1R win turn into a breakeven or slight loss.
> 
> Getting a feel for charts and trading it seems to me that I need to have a good reason to be in a trade. Trades which start to show weakness aren't presenting the same reasons to remain in the trade as they did to enter it. Holding and hoping makes me very nervous with no confidence at all.
> 
> I think my philosophy will be exit on weakness (e.g. upthrust, pivot point reversal) and then decide if I want to get back in the trade based on how price behaves after this sign of weakness.  An extra $12 in fees is a small price to pay compared to giving back 1-2R profit unneccessarily.




A simple solution to glance at initially is to simply reverse the entry.
What I mean by that is demonstrated below, I used the high of the bar prior to the pivot low as an entry trigger and in theory just use the mirror reverse for a potential exit point.
The current market environment seems to be more suitable to this hit and run approach.

In the chart of ALK below I am mixing EW and Fib pattern analysis which is what got me into the stock in the first place and because of that and for reasons beyond this discussion my stop trigger is 2.36 instead of the 2.26 that I am suggesting as a mirror reversal of the entry.

I have a similiar setup occurring on ILU but you can work out what my stop is there ?

(click to expand)


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## pavilion103 (16 June 2011)

Boggo said:


> A simple solution to glance at initially is to simply reverse the entry.
> What I mean by that is demonstrated below, I used the high of the bar prior to the pivot low as an entry trigger and in theory just use the mirror reverse for a potential exit point.
> The current market environment seems to be more suitable to this hit and run approach.
> 
> ...




By the stop trigger do you mean profit target?
Is the initial stop 1 tick below the low that price reached on the reversal?
I can't work out how you calculated the $2.26 stop was arrived at? (obviously the $2.36stop makes sense).

Sorry if this one below (ILU) looks like a bit of a mess. I am assuming you got in at the green entry line. 
I'm not sure if the profit target is measured as the distance from the low to resistance added on, or the distance from the low to the entry added on. 
It seems to have found some support around the $16.53 profit target. Is this correct?


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## Boggo (16 June 2011)

pavilion103 said:


> By the stop trigger do you mean profit target?




No, the 'profit target' is the point where I expect the price to go to (see ALK chart below) when I first took the trade and it is what I based my R/R etc on.
The 'stop trigger' is the point that I would use as a trigger for my exit should the price reverse and start coming down.



pavilion103 said:


> Is the initial stop 1 tick below the low that price reached on the reversal?




In theory yes, but not always so. If it is around a "round" number or a point where I think that everyone else will have their stops then I may stay a few ticks clear of that.




pavilion103 said:


> I can't work out how you calculated the $2.26 stop was arrived at? (obviously the $2.36stop makes sense).




2.26 is the low of the bar prior to the last high, ie the mirror reverse of the entry, 2.36 should be a seperate support level at "B".



pavilion103 said:


> Sorry if this one below (ILU) looks like a bit of a mess. I am assuming you got in at the green entry line.
> I'm not sure if the profit target is measured as the distance from the low to resistance added on, or the distance from the low to the entry added on.
> It seems to have found some support around the $16.53 profit target. Is this correct?




I am on my second entry on the current run up on ILU, see here... Breakout and Pullback thread

I am not going to complicate the discussion with reference to profit targets, that's a whole chapter/thread on its own. The chart below on ALK should show that *Profit Target* has nothing to do with locking in profit along the way if the price doesn't make its "target"
Don't complicate it pav, all I am saying is that I keep a tight stop and based on my explanation in my first comment above you can see where that *Stop Trigger* on ILU might be.

Hopefully that's clarified the simplicity of it.

(click to expand)


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## pavilion103 (16 June 2011)

Boggo said:


> No, the 'profit target' is the point where I expect the price to go to (see ALK chart below) when I first took the trade and it is what I based my R/R etc on.
> The 'stop trigger' is the point that I would use as a trigger for my exit should the price reverse and start coming down.
> 
> 
> ...




Got it mate!

I misunderstood what you were asking. That is all very helpful. Thanks


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## Mistagear (16 June 2011)

pavilion103 said:


> I guess because I'm fairly new I've simply been looking for patterns and then breakouts without taking into consideration a number of things.
> Slightly off topic but how would you calculate the risk/reward potential of one like this (or any company)? I've read that I'd use the height of the triangle (which wouldn't be much)?
> What do you mean by you trade swing extremes? Do you mean as in a range or something? Do you have any examples?
> 
> Cheers




Way off topic, good trade selection is complex, many elements need to be combined starting with knowing what part of the cycle the stock is in (accumulation, mark-up, distribution, mark-down), selection also includes among other things, a process to evaluate one prospect against another for expected risk/reward/time in.
For evaluation purposes I use ATR 
Range as a % of price ,
 allows me to calculate relevant risk/reward in % terms between a $1 stock and a $20 or $50 stock.
Position in the current range (swing) and consistency of recent ranges
allows me to calculate risk back to a point where the current swing is proven to have failed (stop-loss) 
and allows me to calculate a reward target which is equivalent to recent extent of ranges (swing high)
Stocks repeat range swings, price stretches so far and then snaps back to the other side of price range.. I'm entering at a potential extreme when price has stretched in one direction to the point where it has normally been snapping back. If price continues against me, i know quickly that something abnormal to recent behaviour is happening and an exit from the trade is advisable.
Once in a trade which starts the snap back process, I'm looking for an excuse not to exit at the target at the other potential extreme of price. If it approaches the target showing signs of again reversing direction, I exit and let the market prove me wrong. When proven wrong I buy back at a higher price (new trade with it's own stop and target and same process) The stop for the new trade would be if price resumed the prior range which I had originally anticipated
I look for charts with these ranges clearly defined, charts where the swings higher are greater than the corresponding swing  lower and are called uptrends.
Swings can be measured against ATR as time goes on, to evaluate when a trend is accelerating or slowing. (% return/time) 
Retrace in a trend can then be measured against an expected level to gauge continued strength or lessening strength of that trend. 

I dont think I have answered your question, best I could do to explain it, sorry.


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## Boggo (17 June 2011)

Sometimes you just get tired of waiting for something to happen.
I sold out of TPM today at 1.71, had bought in at an average just over 1.69.

An example of possible pattern failure so why wait to find out when it has traded sideways for long enough imo.

Entry trigger shown on chart below, a couple of obvious stop levels also evident.

(click to expand)


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## pavilion103 (17 August 2011)

I have recently read Curtis Arnold's PPS Trading System and among other stops he uses this one:

- move stop to breakeven on the fourth day after entry if there is profit in the trade

I'd love to hear some thoughts on this. The positive is that it moves a trade to breakeven which is obviously desirable. The negative in my view is that the trailing stop may not be at a level which makes sense from a technical analysis point of view.

(as a side note, the other rule he uses is the "swing support power of two" to basically trail at pivot highs and lows)


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## tech/a (17 August 2011)

Love it.

The point here is that youd expect your trade to have moved apreciably in your direction in 4 days.
If it stalls there is a good chance that it may come back on itself.
If it does that then your initial analysis will not be valid and you should indeed be out of the trade.

There is an abundance of triggers so no pain if closed at B/E particularly if it costs you $5 from IB.


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## pavilion103 (17 August 2011)

tech/a said:


> Love it.
> 
> The point here is that youd expect your trade to have moved apreciably in your direction in 4 days.
> If it stalls there is a good chance that it may come back on itself.
> ...




What do you think about the 'Swing Support Power of Two' trailing stop. 

"A day that is both immediately preceeded and followed by two days whose lows are higher than that day."

This means sometimes even the slightest dip becomes a new low and can be quite close to price action (although once again I guess if it has momentum this isn't a problem). As I've discussed with you previously Tech, it seems as if some of my trades are being exited early before the big profits are allowed to come.

I'm testing and testing. Trying to find that balance can be frustrating


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## pavilion103 (18 August 2011)

Doing some more testing I'm thinking of having a TIME stop as following:

"If it trades X days outside of profit without activating my initial stop I close the position."

If this is combined with the 4-day rule it could mean, for example, that any position is either closed or moved to b/e after 4 days. 

(obviously I can change the number 4 to whatever seems best following my testing).


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## tech/a (18 August 2011)

> it seems as if some of my trades are being exited early before the big profits are allowed to come.




If this is the case then a tight stop is fine.
Its how loose your trailing stop is that matters to catch the big profits.
bear in mind that if the index isnt trending there is limited chance that your individual stock will trend against the grain!


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## pavilion103 (18 August 2011)

One thing you've mentioned to me before Tech has to do with high momentum trades. I feel that I am much better at identifying high-probability set ups than I was before but am holding onto losing trades which lag for 4-5 days. This results in:

- trades falling back to my initial stop and taking a 1R loss, rather than cutting them short for a smaller loss when it is obvious that the trade isn't going as well as quickly I thought it would when I entered. 

- being in a trade for different reasons than when I entered (i.e. just hoping it will go up)

- the opportunity cost for new high-probability setup trades. My capital is tied up in stocks which are lagging. With many good high momentum/probability opportunities to choose from it is foolish to be holding underperforming ones. 


I'm thinking of a 4-5 day time stop. I'll play around with it in testing. As you've said to me many times before Tech, it's better to get out because I can always re-enter if need be.


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## tech/a (18 August 2011)

Really fast trades are GOLD.

I find lots of them *THE DAY AFTER *they fly!

If you do happen to get one its a bar by bar proposition and in my case a 15 min bar on a real flyer.
TVN was my last---have a look at the chart.
I can post the intraday chart with comments on the exit if you wish (When time)
I think I still have it.


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## pavilion103 (18 August 2011)

tech/a said:


> Really fast trades are GOLD.
> 
> I find lots of them *THE DAY AFTER *they fly!
> 
> ...




Yeh that would be brilliant.


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## pavilion103 (22 August 2011)

Another pattern that I've noticed in my testing is that not only are some position lagging at the start, but I'll make a quick 1-2R profit and then the trade may lag for 10 days or so. 
I'm trying to capture high momentum moves but also don't want to hold trades without momentum due to the opportunity cost of entering more profitable positions. 

In addition to an initial 4-5 day stop where I either move the stop to break even (if in profit) or exit the position (if not in profit), I am thinking of using a stop which exits me if the momentum of a trade lags at any point. For example, if price is lower today than it was X days ago, then exit. 

Does this sound like a good idea to anyone?


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## Mistagear (22 August 2011)

pavilion103 said:


> In addition to an initial 4-5 day stop where I either move the stop to break even (if in profit) or exit the position (if not in profit), I am thinking of using a stop which exits me if the momentum of a trade lags at any point. For example, if price is lower today than it was X days ago, then exit.
> 
> Does this sound like a good idea to anyone?




This sounds like a fantastic idea sometimes....and it sounds like a total disaster on other occasions.
I think different market conditions require totally different methods to capture consistent profits.
eg:
Are you going to use the same stop method following a parabolic upthrust move as you would for a rounding top formation that has low range/falling volume ?
For me, the parabolic would require an exit at the first sign weakness whereas the second situation would be given greater room to see if supply came back into the equation. Therefore no single method can be employed.

Cheers, M


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## tech/a (22 August 2011)

Mistagear
Agree in principal
But I prefer to sell a parabolic rise on it's way up.
It's pretty easy to see exhaustion on a 5 min chart for stocks and a 1-2 min chart on index futures


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## Mistagear (22 August 2011)

Tech/a,

If you and I exit at different points thats fine and part of the market, the point I was attempting to convey to Pav is, not to get bogged down with building a cookie cutter, rather make each cookie as big as you can manage with whatever conditions prevail on the day.

PS. I'm only an infrequent visitor to these forums and even less frequent poster, but would like to thank you Tech for the quality, quantity and consistency of your posts. Have personally benefited from your wisdoms and sure many others have also.

Regards, M


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## pavilion103 (22 August 2011)

Mistagear said:


> This sounds like a fantastic idea sometimes....and it sounds like a total disaster on other occasions.
> I think different market conditions require totally different methods to capture consistent profits.
> eg:
> Are you going to use the same stop method following a parabolic upthrust move as you would for a rounding top formation that has low range/falling volume ?
> ...




Very good points.

I am fiddling with a number of trailing stops in addition to the ones mentioned. Exiting after a set number of days is more of a momentum stop for me in that if the trade doesn't have momentum I exit. 
Other stops I'm playing around with and trying to figure out what to do include:
- gap stops
- wide spread day stops
- Max drawdown stop (e.g. if I only want to give back at MOST 2R in profit in any given trade).

So the stop previously mentioned is certainly not my only stop. It is purely used to get out of low momentum trades due to the opportunity cost of my capital.

It seems like things are taking shape and I am certainly trying to cater for all likely scenarios (as much as I can).


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## tech/a (23 August 2011)

One of the biggest secrets to exceptional Technical analysis is

*Being able to read what an instrument will do after momentum has temporally stalled.*
It really is the missing link!

In Pavs case would it not be advantageous to know wether a trailing stop should be triggered or left open
Would it be best to hold if nothing happens for x number of days--- rather than exit only to see it take off without you?


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## pavilion103 (23 August 2011)

tech/a said:


> One of the biggest secrets to exceptional Technical analysis is
> 
> *Being able to read what an instrument will do after momentum has temporally stalled.*
> It really is the missing link!
> ...




I guess what I'm still trying to discover is how do you define "temporarily"
That is why I am playing around with the "X" number to see what works best for me. 

I figure anything that stalls for longer than, say 5 days. I can just buy back into (although I would miss any enormous one day moves).

Of course I am also looking at VSA as price stalls. Is it a high volume down day with a very narrow spread? Is it a low volume down day with a wide spread? Is it struggling to go up on very high volume up days with narrow spreads, into new high ground (possible buying climax)?
That is why I agree that it may be better to hold sometimes, if it looks like there is accumulation and at other times to exit if it looks like there is a lack of demand. Obviously still getting my head around this, but getting a much better feel for it.


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## pavilion103 (18 October 2011)

I've been implementing a 4-day breakeven/exit stop. 

This means that if at the end of the 4th day price is at or below breakeven I'm out, no questions asked. My trailing stop is also moved to breakeven. 

This has worked with success. My accuracy has decreased using this approach, but many of my positions are closed out between breakeven and 0.5-0.7R, whereas before the same ones would have been left to hit my initial stop at 1R. 
Many more higher momentum positions I can then look to take. 

In terms of some of my trades stalling...... I'm still unsure how to deal with these. There are still some that sit just above my tailing stop but don't move as much as I would like.


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## peter2 (18 October 2011)

Pav103: This is one of your better posts for some time. Instead of asking for a discussion you have posted what works for you. Finding out what works for you is the heart of trading profitably. Your 4-day rule probably works better in bear markets than bull markets. Test it out and define when you use it and when you use the trailing stop exits. 

Yes your W% will drop below 50%. So what, it's about making money not being right. The bonus is that your AW/AL will look better. Increasing this ratio will increase your edge (expectancy) faster than trying to increase your W%. 

I suggest you consider having and using a re-entry rule when using tighter exits.


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## pavilion103 (18 October 2011)

peter2 said:


> Pav103: This is one of your better posts for some time. Instead of asking for a discussion you have posted what works for you. Finding out what works for you is the heart of trading profitably. Your 4-day rule probably works better in bear markets than bull markets. Test it out and define when you use it and when you use the trailing stop exits.
> 
> Yes your W% will drop below 50%. So what, it's about making money not being right. The bonus is that your AW/AL will look better. Increasing this ratio will increase your edge (expectancy) faster than trying to increase your W%.
> 
> I suggest you consider having and using a re-entry rule when using tighter exits.




I've been playing around with re-entries also. I haven't been able to come up with a rule as yet. I've re-entered on rectracement setups often and I've also realised that re-entering often can give me a greater R:R, as I can place the stop in the same place but with a lower entry price (if volume looks bullish). 

The trap I can see myself falling into is re-entering positions too often and instead of losing, say 0.4R, I could end up losing 0.4R on position 1 and 1R on position 2 for a total of 1.4R.
I guess I need to treat each trade as a completely new trade and enter on its merits.


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## tech/a (18 October 2011)

> I guess I need to treat each trade as a completely new trade and enter on its merits




Boom Boom.


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## pavilion103 (18 October 2011)

Just thinking that a possible solution to the trades lagging sideways could be to implement a 'logical trend line' stop. This can sort of be a backup in a way, in that I have my usual stops but should price break below a (usually well established) trend line, then I am exited out of the position. 
So if prices continued to just track sideways for too long, my 'logical trend' stop would ensure that I am taken out of the position.


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## peter2 (18 October 2011)

Re-entries: We don't want to re-enter just because it sounds sexy, we should only re-enter if the original conditions for the initial trade are still valid.  I'll buy a BO of a resistance level and if the trade is not in profit after 3-4 bars exit for a small loss. My re-entry is a new high or it can be the same price level as before provided there is additional evidence of demand since the first attempt. You may think of this as a new trade or a second chance it doesn't really matter. What matters is that you are starting to see the benefits of keeping your losses smaller than perhaps you originally thought. 

I treat my initial SL as a disaster exit. I'll know if my trade is not working out as I like and exit before the initial SL is hit and I'll be ready to re-enter. A good book that outlines the benefits of tight exits is "One Good Trade" by Mike Bellafiore. Prop traders in the book trade $80 stocks using 10-15c stops. The book also emphasises the importance of repeating one good trade over and over again. 

We all get stuck in stocks going nowhere. Sometimes this is good (if the market is going down) and sometimes we feel that we are missing out (when the market is going up). I don't know what works best in this situation. You will have to evaluate if your capital is better used in another opportunity or not.


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## pavilion103 (18 October 2011)

peter2 said:


> Re-entries: We don't want to re-enter just because it sounds sexy, we should only re-enter if the original conditions for the initial trade are still valid.  I'll buy a BO of a resistance level and if the trade is not in profit after 3-4 bars exit for a small loss. My re-entry is a new high or it can be the same price level as before provided there is additional evidence of demand since the first attempt. You may think of this as a new trade or a second chance it doesn't really matter. What matters is that you are starting to see the benefits of keeping your losses smaller than perhaps you originally thought.
> 
> *I treat my initial SL as a disaster exit.* I'll know if my trade is not working out as I like and exit before the initial SL is hit and I'll be ready to re-enter. A good book that outlines the benefits of tight exits is "One Good Trade" by Mike Bellafiore. Prop traders in the book trade $80 stocks using 10-15c stops. The book also emphasises the importance of repeating one good trade over and over again.
> 
> We all get stuck in stocks going nowhere. Sometimes this is good (if the market is going down) and sometimes we feel that we are missing out (when the market is going up). I don't know what works best in this situation. You will have to evaluate if your capital is better used in another opportunity or not.




Interesting terminology. I think this was a big missing link in my trading success previously. I'd just cop 1R losses consistently and then try to find a home run 10R win to make up for it. 
I like how you termed is disaster exit. It certainly shouldn't be the norm to have it taken out. 

From a psychology point of view I need recognise that the thrilling trades are few and far between and that being stopped out with tight exits is essential for capital preservation.


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