Say we have an uptrend, and my buy order is triggered at 5000. The TA shows me a stop-loss level about a hundred pts lower, a swing low or something like that: for ease of the example let’s say its exactly 100pts lower (I don’t advocate using a fixed stop distance, only TA-based stops). Let’s say the position size is £1/pt. Initial capital risk = -£100.
The initial trade, Trade 1, is open at 5000 with a SL at 4900, position size is £1/pt. I also enter a new buy at £1/pt at 5100, with SL 5000.
If Trade 1 goes straight to SL, I close 80% of it at -50 and the rest at -100. Net loss = -£60.
If Trade 1 goes to 5100, Trade 2 is opened. I move the SL on Trade 1 to entry, 5000. Capital risk = -£100. I set a new £1/pt buy, Trade 3, at 5200, with SL at 5100.
If Trade 3 is triggered at 5200, I move the SL on Trade 1 to 5100, move the SL on Trade 2 to entry, 5100. From this point onwards, capital risk is £0. I set a new buy order, Trade 4 at 5300, SL at 5200. And so on and so on.
While price is increasing from 5000 to 5199, my capital risk is £100. But as soon as Trade 3 is triggered at 5200, capital risk cannot be greater than zero, whereas I will now benefit from price rises at £3/pt. This causes unrealised gain to rise parabolically as additional trades are added. R:r can quickly get into double figures for no additional risk.
The downsides are firstly that you carry the -£100 capital risk for twice as long as if you just ran a single trade with a 100pt trailing stop. Secondly, if you use the 100pt grid as your SL definition, it means that all trades will close simultaneously when the latest SL is hit, with a 100pt loss per trade. Traders would be able to decide personally if its worth them taking profits at what looks like a high, or holding on and swallowing the considerable loss of unrealised gains in order to maximise return. There’s no right answer here I believe.
As a practical example, last month I was able to push a GBP/USD long to 7 overlaid positions. R:r on 7 overlaid identical sized positions using the grid SL is 1:14. But in reality its better than that as risk after Trade 3 is zero.