I was wondering if anyone could share some insights into their thoughts when it comes to trailing stops to lock in profits.
I understand how a market structures and the basics of trailing stops, I am interested in hearing particularly from people who have insights on how to prevent high water mark DD brought about by winning trades coming back against you.
I was wondering if there is a point where rather than using price action, there are arbitrary points to lock in profit, even if the price action does not “suit” it.
For example, let’s say a trade uses an average of 1:5 RR and uses 1% risk per position. They take a hypothetical trade where they risk 20 pips to gain 100, the trade goes 80 pips positive.
So, the trade is 4x up, if price had broken a shorter term SR level it was possible for it to retest and this would be a 40 pips retracement, would you think the smartest thing to do here would be to pull stops tight since if it is going to retrace to that level, you have to risk 40 pips when you only have 20 pips to gain. In this hypothetical example, would you think it best to lock in the profits and then perhaps buy again on the retest (assuming you risked 20 pips on buying again even if you lost you’d have banked more pips than you’d have if it retraced).
If for any reason you could not actively watch and adjust your trades, would you set an automated trailing stop based on the concept it is better to get stopped out on too shallow a retrace than on too deep a retrace?
How do you find the balance between preventing HWM equity DD but also leaving yourself with the best chance to get paid on your high RR trades that are running well?