If anyone uses an automatic trailing stop on longer trades, would you use a percentage of ATR for the trail? If so, what guideline?
I’m considering stepping exits by taking half my position off at at certain level, trailing 1/4 and leaving 1/4 at break even to see what happens.
On a 4HR chart, i’ll move to break even at the next candle that closes in a profit. I will then move stop loss every 50 pips that I can lock in as candles continue to close.
My ultimate goal is to nab at least 50 pips per trade. However, if price keeps moving, I’m placing myself in a position to take advantage of an additional 50 or more pips.
Exceot that if it goes to 50 and then back, you’ve missed out both? 
There are three general scenarios that occur.
One is the trade doesn’t go my way. I’ll generally close it after the 4HR candle closes.
The price didn’t move 50 pips, in which case I will move stop to break even. Price will either continue my way or it will stop at break even.
Price will go in my direction where I’ll move my stop accordingly.
However, this is all when I feel like trailing my stop. Sometimes I just lock in the 50 pips and let the price continue on doing what it needs to do until price action dictates that it’s time to pull out.
So sure, price can move 50 pips and back, but that usually doesn’t occur. I look for high probably set ups where price will move my way.
I am using the following advanced automatic trailing stop system for longer trades. With longer trades I mean one week and more.
Time frame = 1 day Time Interval Charts
Indicator = ATR 14
The Advanced Trailing Stop System has the following components:
-
Initial Stop, expressed in terms to the entry day
(eg. Closing price less 2 ATRs) -
Trailing Profit stop, calculated on each bar of the day after entry
(eg. High less 3.5 ATRs)
I have incorparated the following types of stops:
-
Breakeven stop - this is calculated on the entry day and is implemented when the instrument passes a “transition point”.
(eg. Move my initial stop to a breakeven stop when the price closes 2 ATRs above my entry price). -
Pyramid Points/Tightening Stops - the Trailing Profit Stop can be recalculated when the instrument passes further transition points.
I have defined two such points.
(eg. When the instrument moves more than 4 ATRs above my entry price, change to a trailing profit stop that is the High less 3 ATRs. If it reaches 6 ATRs above my entry price, change to a trailing profit stop that is the high less 2.5 ATRs).
By using logical values for the ATR 14 multiples, you can define your trading style. For short-term trading, a trailing profit stop of 2 - 2.5 ATRs is useful. For medium-long term trading, a trailing profit stop of 3-4 ATRs is useful.
I am using trade stage system below that allows me to trade with very specific defined entry points and trailig stops…
0 - Not in a trade
1 - In trade, current stop being used is initial stop, trade is still underneath transition point to breakeven stop.
2 - In trade, trailing profit stop used
3 - In trade, price is past first pyramid point
4 - In trade, price is past second pyramid point
-1 - Trade stopped out on initial stop
-2 - Trade stopped out on trailing profit stop (or breakeven stop if this is being used)
-3 - Trade stopped out on first pyramid trailing profit stop
-4 - Trade stopped out on second pyramid trailing profit stop.
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For instance, in a long trade, you could increase the [B]lowest low price by 5% of the channel height or by 5% of the average true range[/B], and use the adjusted price as your exit stop.
END QUOTE ARTICLE
I have tested this approach and I got stopped out 90% of the time. In my experience this approach is not suited for highly volatile markets we are seeing at present and will continue to see.
That’s why I am using 2 ATR’s for initial Stop and 3.5 ATR’s for Trailing Profit Stop for medium term and long term trades.
I think your approach definitely has merit, I have used 2.5 ATR often, never thought to adjust for longer as I am not in a trade for too long.
What I did for my own purposes was to examine 200 entries on my setup and calculate several parameters and come up with a stop loss that would get me out quick if I had made an erroneous entry…
Stops and trailing stops are a matter of preference and experience is the real teacher, people have to experiment until they find what they feel to work the best, as you have done.
Thanks for posting your strategy.
dave