Trail Stop As Soon as Price Moves?

Trading Tech and Tools
1

Hi Everyone,

This question is addressed to those who believe in trailing price with the stop loss.

Those who believe in trailing stops, it seems, always say to wait for price to progress a significant number of pips in the profit zone, then move the stop to break even, and then trail the stop from there. However, I do not see why price shouldn’t be trailed right from the beginning of the trade.

Let’s say the initial stop loss is at 50 pips. If the price moves in your direction, let’s say, 10 pips, why not begin to trail price in 10-pip increments even though the stop will still be 40 pips in the negative zone? After all, reducing potential loss is exactly the same as locking in profit; so in this regard, the entry line has no special magic. Let’s say the stop is advanced every 10 pips from the initial 50 pips in the negative zone. This will be the progression: 40 pips in the negative, 30 pips in the negative, 20 pips in the negative, 10 pips in the negative, break even, 10 pips in profit, 20 pips in profit, etc. Why the heck not? It’s an unbroken and steady progression from loss to profit.

Thanks,
Norm

2

Seems very logical Norm. I suppose whether its a good idea depends on whether it works on your specific strategy, it doesn’t have to work on every strategy as long as its good on yours.

So the question for next week / month has to be - is it working for you?
But the -
If so, why?
If not, why not?

3

Thanks tommor,

A little affirmation goes a long way - and yes, it will be tested in due time.

Take care, and Happy trading,
Norm

4

All being well, you should soon be able to see that the trailing stop reaches break-even. Have you a plan to pyramid at that stage (or earlier) (or later)?

5

No, I haven’t tommor. I’m not there yet. I’m still in demo with systematic testing on a system that looks like it has real promise, but it seems perfect for pyramiding. Your suggestion inspired me to look further into pyramiding, and I found a very clear article on it, which I’m saving: Pyramid Trading Strategy (Double Your Profit Potential).

The system is based on a “simple strategy” that Forex Tester sends to those who buy FT, and it’s called Trader vs. Coin. They’ve done much testing to discover the very best stop loss for various time frames for EURUSD over a period of 12 years, and have discovered that the best combo is a 55 SL on the daily. Their system involves tossing a coin. If it lands heads, you buy, and hold the trade from candle open to candle close. If it lands tails, you sell. (I’m doing mid-candle to mid-candle because of where I live.) You do not set a profit target, and no matter what, there is absolutely no management; and even if your trade is shooting in your direction like a rocket, you still close the trade and start a new one. They gave some very impressive figures for the per cent one’s account is likely to grow each year.

However, I think I added a tremendous edge. I’m still doing 55 SL for EURUSD on the daily with absolutely no management for the first 24 hours (to validate my testing, which is not with FT because I haven’t learned it well enough yet), but

  1. instead of tossing a coin, I’m deciding whether to buy or sell based on price action and analysts’ projections; and
  2. if the trade is moving in my direction after twenty-four hours, I’m letting it run and then managing it to the hilt, moving the stop, adding a profit target, deciding whether to manually close it, etc.

I’m very confident that I’ll be happy with the results. My results thus far? Actually, I’m in the middle of my second test, so it’s much too early to tell; but I’ll tell you two things:

  1. On my first test, I caught an incredible break: EURUSD was in a very tight range, but with an upward bias, so I bought and caught a breakout - on the last candle of the range! - that landed me 125 pips after a day and a half. (It could have been 140, but I was away from the computer for the last 2 hours before I closed the trade.)
  2. EURUSD has been in a distinct upward trend at least since 2016; so if I’m in doubt as to which direction I’ll go, I’ll default to buy.

If the system proves successful, I’ll go live, and then test it on other good pairs, but with an SL that is proportional to the ATR of the EURUSD.

Once I gain more stability and confidence in the management aspect of my trading, I’ll try pyramiding, especially since that article makes the method and numbers very clear - and thanks to your boost in my thinking in that direction.

Thank you, tomorr.

Take care,
Norm

1 Like
6

There are 3 trailing stop methods I use in my trading.

The first one is when I am swing trading. For example, if I am long at support, I will not move the protective stop until I reach resistance. I then place my stop below the low of the most recent candle close. If price moves above resistance, like I hope it does, I’ll wait for price to move to the next resistance level before I move it again. This technique is called trailing zones, and works in reverse if you are short.

The second method is to simply count candles. I use this method when trading big trends. If I am long, I will find the low of the most recent ten candles on my chart and place my stop there. This usually correlates to the most recent swing low, but not always. Move the stop loss only when the low of those ten candles moves up. Eventually you will get stopped out, hopefully with a profit. The drawback to using this method is you could miss some profit by potentially letting price retrace 10 candles before taking profit. Of course, this all works in reverse for a short position.

The third method is the same as the second, except I use 3 candles instead of ten. I only do this when I am in the spike phase of a trend, or at least a very strong channel.

Hope this helps.

7

Hi Steve,

I only used the 10-pip increment example to keep my question simple. Your first method is actually similar to what I do. As price approaches resistance I move it closer to where it seems reasonable; and if the stop lags too far behind price before price approaches resistance, I’ll move it to where it seems reasonable - but your method makes a lot of sense! I’ll think about it. As to your latter two methods, I know that many traders move their stops behind the current or previous candle no matter what the conditions, but I hadn’t quite thought it through about moving it behind, for example, three or ten. I’ll give all your suggestions some thought. In fact, I’ll print your post, eat it and digest it. I think it’ll taste good.

Thanks,
Norm

8

I think you and I agree there should be a technical reason for moving the stop. Best of luck on the charts.

9

Thank you Steve,

Take care,
Norm

10

Hi Steve,

I liked the idea of the “behind the 3 candles” approach after you suggested it. Well, I was just watching a Walter Peters (Fx Jake) video, and he demonstrated it. I like it. Think I’ll use it.

Thanks again,
Norm

11

I like to do swing trading. I feel comfortable with trailing zone technique. The benefits of this method is if you are short in trading it will gives you reverse result. Sometimes I also use candle counting. It is helpful for long time and big lot trading. It almost related to most recent swing low trading. Also in my forex trading when I get a very strong channel I use to do the same thing as candle counting but it is less in amount.

12

Hi Jonathan,

Thank you for your suggestions. As a matter of fact, I’ve demoed with trailing zones; but what do you mean when you say that if I am short in trading it will give you “reverse result”? What do you mean by “reverse result”? Do you mean that if my stop is hit at a zone that it might show me a reversal level? I can see that that would be true, but only if price bounces from the level and doesn’t break through and keep going. But if price bounces, you wouldn’t need a stop loss there to show it. Please explain what you mean.

Thanks,
Norm

13

That’s where I got the idea. just be sure it is in a trending market

14

Hi Steve,

Your suggestions seem to be having a strong influence on how I handle stop losses. I’ve been studying them closely, and if you don’t mind, I’d appreciate some clarifications.

You use different approaches for different types of trades.

  1. How do you define a “big trend”?

  2. You use the 10 or 3 candle method when trading trends, and use trailing zones when swing trading.
    a. But aren’t you also trading trends when you’re swing trading? Almost all swing traders trade trends as opposed to trading within ranges. How do you distinguish between the two?
    b. Why would you use different methods for swing trading and trading trends?

  3. Do you use the 10 or 3 right from the very beginning of the trade?

A couple more, if you don’t mind:

  1. If you are away from your computer for eight or ten hours, for example, how do you handle your stops? Your profit targets?

  2. Please excuse the question: I’m assuming that your methods are serving you well, correct?

Thank you Steve!
Norm

15

Pull up the EUR/USD Daily chart. That would be my definition of a big trend.

Most swing traders I know of trade between weekly levels, which you can classify as a range. You can also trade between minor swing levels during a trend. In trend following, you ignore swing levels until the trend reverses or you are stopped out. In other words you enter into the trend and follow it until it is no longer a trend. At this point, it usually transitions into a trading range.

During a trading range, the bulls and the bears both have an equal chance of making money. During a strong bull trend, only the bulls have a good chance of making money. In a strong bear trend, only the bears have a good chance of making money

Concerning trailing stops, I find it better to give swing trades more room, and tighten up the stops when trend trading. That’s just part of my psychological makeup. I am currently trend following exclusively. My win rate has shot up quite a bit because of it. I like to win trades, even if they yield small profits. Hopefully, one day, I’ll mature out of that tendency.

I currently use a 10 bar breakout strategy and trail my stop 3 bars after I am “happy” with the way the trade is moving. Pretty discretionary at that point.

If you are working a full time job, my advice is to trade the daily charts. You just manage your trades at the end of each close of the daily candle.

Better than before using a mechanical system. My current win rate for the 15 minute chart is 80%
100% win rate so far this month on the 4hr chart. I currently sacrifice large profits for a better win rate. I am a much happier trader that way.

16

Thank you, Steve, for your thorough reply. Unfortunately, my schedule disallows me from trading the daily on close/open of candles, but I’m doing my best from mid-candle to mid-candle. If you have any advice on how to handle stops and TPs when trading like this, I’d be thankful.

I’ve recently shifted to being much more conservative in terms of not swinging for the fences with large R:R ratios and large stops, and your comment has affirmed me in this. At this stage in my journey, loss after loss simply hurts too much, even if offset by a good win. Kathy Lien: “Bag your profits quickly.” Boris Schlossberg: “Never let a winner turn into a loser.” “A bird in the hand is worth two in the bush,” etc. My own personal aphorism: “Learn to win a little now, then learn to win a lot later.”

100% win rate? Can’t you do better than that? :grinning: How do you handle your stops and TPs on these, particularly on the H4?

Hope you’re not getting tired of answering my questions. I’m still studying what you wrote, so there may very well be a few more, so brace yourself! :grin: - but I’m not going to take advantage of your good graces forever :cry:

Thank you Steve,
Norm