Trailing Stop Loss

[Mistagear]

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

 

[pavilion103]

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

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).

 

[tech/a]

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?

 

[pavilion103]

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?

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.

 

[pavilion103]

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.

 

[peter2]

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.

 

[pavilion103]

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.

 

[tech/a]

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

Boom Boom.

 

[pavilion103]

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.

 

[peter2]

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.

 

[pavilion103]

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.