Hi traders. My strategy for trend following involves manually trailing my stop loss under troughs in uptrends. Many times the market moves in my favour only to reverse and get stopped out before I can lock in some profits with elevated stop loss. This is a disadvantage to trailing instead of using a take profit. I still believe trailing stop loss milks the most out of the trade when it works out with persistence long trends. What do you use in your trading?
Great question - it always will be - there’s no right answer.
Planning a trade, the classic technique is to use TA to locate the SL, then to adjust position size to quantify capital loss.
Yes its reasonable to use a TSL (or move the SL to break-even) as the position goes into profit. But now your exit is not based on TA: its random. Is that really the best tactic?
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I didn’t quite understand that last part you wrote. I never place my trailing stop loss to break even. I always place it under the troughs in uptrends. It may need 2 or more pullbacks for me to start locking in profits.
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Thank you - there are two types of dynamic stop-loss. The trailing SL can be pre-set at any time and simply, on a long for example, moves up as the price moves higher: if it is set at say 25 pips, the TSL is always 25 pips lower the highest price reached. The TSL is only triggered when price drops 25 pips.
What you are talking about is a stop-loss which you move manually. It doesn’t have a general name in trading, though I call it a ratchet stop. This is not a trailing stop-loss. This means, yes of course, you could use TA to find a valid new price level for the SL.
But the issue remains - if the SL is your exit, you will never get the maximum profit that was available.
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Thanks for the reply. I didn’t realise there isn’t a proper term for what I was describing. I know about “true” trailing stop loss but don’t see its practical use in real trading. Obviously you can never exit at the exact top or bottom unless you are lucky or spot maybe some kind of divergence. Anyhow I have had some really good trades in the past that just keep moving and I keep increasing my stop loss and once the trend reverses I am out making a killing in profits.
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Which sounds like you are following trends rather than trying to catch reversals. When you’re trend-following, anywhere to get in is good, and anywhere to take profits is just as good plus is often just another place to get in.
I am also a trend-follower and am consistently banging on about it here as being the way to make trading profitable and simple. It also has the benefit of being undramatic, so emotional issues have less power for trend-followers. For me especially, simple is good…
I have a slight variation to your method. When entering I am looking to get in at either the first or second pullback after reversal on 5 minute chart. This gives me a sense that I am getting in early enough. I am reconsidering that maybe getting in at any pullback is good. I also use a bit of Elder’s triple screen to get sense of direction on high time frame first and then wait for a reversal in the direction of the bigger trend on the smaller time frame. Any thoughts?
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I’ve no experience using Elder’s system.
But otherwise this is a classic trend-following set-up. There’s two places basically to get into a trend - where price makes a new high in an uptrend, or where price pulls back and then resumes the uptrend. I use either depending on context but I favour waiting for not just the trend but confirmation from price movement. Often I will wait for a close above a certain level rather than just a breach of that same level etc. But that’s a minor variation.
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I have a scalping strategy that takes profit at 1:1 RR, that’s it. I have a breakout strategy that begins trailing after a certain R:R level is reached, trail is on supertrend line, but take profit if it hits a certain R. What’s that R? Well I’m an algorithmic trader so I have lots of backtest data to work with, the question is, what R does your strategy/pair tend to not go above?
So look at a lot of history and determine a good R to go ahead and bank profit and exit the trade. Sometimes it will continue on up, but the history should tell you it usually doesn’t.
/Daryl
This is a good question but it all depend on your trading plan and strategy as well as your phycology. If you are a trend trader, you got to remember the markets trend 30% of the time and they are range bound 70% of the time. You also got to take into account your timeframe for trading and how long you are welling to be patience!
I use fixed profit target using true range for the period and looking at the highs and lows or S/R or trendlines etc. The principle should be you take what market is offering you. Don’t try to pick tops and bottoms. Have a reasonable target to get from the daily range - say 10%, 20% or more. All that means you have to manage your trade if you have time to do it by gluing to your screen! I don’t. I believe in Get in… Get done… and Get out… I am happy with 20 pips a day. You may not thing that’s no good but I think about compounding over the long terms. For example, 20 pips with a position size of 10 pips = £200 a day = £1,000 a week = £4,000 a month = £48,000. Is that not good enough for a few hours a day’s work.
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For example following the 2oEMA or whatever you like. it’s all to do with how much time you are willing to put in for active trade management - breakeven, scaling in and out. It’s your preference and you got to be comfortable.
I don’t use yet, i have to understand how it works first
I use fixed stop loss because the second option, trailing stop loss is somewhat tricky to use correctly. When vol is high it’s highly likely that price will revert back and hit trailing SL so you miss good part of the profit. In my view this option is a kind of advanced one.
mine also
i agree with this, as long as you trail manually as you described above
i disagree with it, overall, if you use automated trailing stops, which are deceptive, hard to test, often misleading, and loved by counterparty brokers who win when you lose
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Not just counterparty brokers but authors, trainers, commentators, signals providers etc. etc.
The best outcome for the vendor of trading systems or training courses is if the trader loses money but slowly. This gives the trader the incentive to stay in the game and buy more product. If the new trader immediately started to win at trading, there wold be no such incentive and so the vendor market would be immediately limited. They want us to lose money.
Yes. I used the wrong term when I said trailing stop loss. I meant manual adjustment of stop loss.
I remove my trailing sl only after confirm breakouts.