Trailing Stop Loss

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

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.
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

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

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.

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)

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.

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)

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?

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)

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.

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.

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".

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)

Got it mate!

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

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.

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)

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)

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.

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.
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.

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

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).

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!

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.

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.

pavilion103 · 18 August 2011

tech/a said:
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.

Yeh that would be brilliant.

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?

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

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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