[quote=“Aidobeast, post:8, topic:141860”]
Opinion is but your own. But I fail to see how a trailing stop loss is not logical. Seems rather logical to me to minimise loss and retain profit. [/quote]
The key word in Lukas’ post, I think, is “automated”:
The main principle with any stoploss should be that it closes the trade if price reaches a point that negates the reasons for being in the trade any more. E.g. drops below a previous low swing, etc.
There is nothing wrong with reviewing the stop level as your trade progresses but automating a trailing stop is not necessarily the best way of doing this. Automated trailing stops can be dynamic and move up (or down) pip for pip as your trade reaches new highs (or lows) in the direction of your trade. Another method is to step the trailing stop so that it only moves every time an additional, say, 10 pips is achieved. Either way, these can cause problems.
We all know that prices do not move smoothly and can spike quite considerable distances - and then return back to the same level. Such spikes then cause an automated stoploss to jump by the same amount, but without the return. Therefore your stop is now much closer to the actual price than was originallly intended and no longer at a logical position - which makes it now vulnerable to being triggered by “mistake”.
In order to avoid the above problem, one has to start with wider stops. But this, in turn, creates the problem that too much of the profit achieved during the time the trade is open is given back before the stop is triggered - which can decrease the optimal performance of your method.
A more logical way to trail stops is manually. I.e. whenever a new key level appears during the trade development or by locking in a profit or breakeven once a certain profit level is reached. In this scenario, you are maintaining a logical reasoning for your stop level.
[quote=“Aidobeast, post:8, topic:141860”]
Also keep in mind the trailing stop loss only comes into play once a profit is on action. That way I can’t lose once in the profit zone. [/quote]
On the face of it, this seems a reasonable conclusion on a trade-by-trade basis, but it can be a deceptive conclusion in the long run. It is the same philosophy as “you never go broke by taking a profit”. This is not actually true - in fact over time it can be very damaging, if not even financially fatal.
The point is that the key factor in trading consistently is both risk and money management. Your net profitability relies on your overall profits exceeding your overall losses. Therefore one’s trading method should include some kind of overall R:R to reflect this need. But therein lies the risk: Anything that reduces the overall profit input to this equation, without a corresponding reduction in losses, damages this overall profit/loss ratio - and somewhat covertly, too.
This is the risk with trailing stops, even though they may still close out a trade with a profit, if they reduce the potential profit level that would otherwise accrue.
There is no “right” or “wrong” here, It is purely an issue of how to optimise the overall profit v. loss. If automated stoplosses improve the overall profitability then it is good, otherwise…
