Trailing stops vs that other way

[TinGull 10]

Lately I've been having major issues with stops and trailing them. Today, for instance, I was long the YM at 325, and price moved up 12 ticks or so and then when I saw price start to get halted around 333ish on 2 5min bars, I moved my stop to BE +1 and got stopped out, only to have price rally nicely for 50-60 points pretty quickly.

 

I've been trying to come to terms with if I should just set it and forget, or actively trail my stops. What do YOU do and why?

[brownsfan019 17]

Tin,

Funny you bring this up as it was something I was looking at today as well. Here's my take - I'm terrible at trailing manually. I know that just 'eye balling it' doesn't work for me, so some sort of mechanical system is needed.

 

Here's the options as I see it in no particular order:

* Trailing Stop

* Fixed Profit Target

* Some sort of combo of these two options

 

I think everything is really a function of those three options. Either you say I am going for +10 and sit there with a limit order or you say I am going to wait and take myself out (manually or rule based).

 

So for me, obviously a fixed target is easy; however - it really sucks in a big move. If you get a trade that ends up going for +50 and you are out at +10, you can sit there and scratch your head for awhile. Of course the argument is you can re-enter, but let's say that doesn't happen.

 

And a trail is a touchy thing as you've illustrated here. My belief is that the trail needs to be aggressive or loose. I'm not a big fan of the move the stop to break-even or around there simply b/c it creates a 'risk free' trade. Well, you tell me - how did your 'risk free' trade work out? :doh: Exactly. Point being that if you had an aggressive trail, you would not have caught the +50, but I would guess that you could have got more than +1. And a loose trail could very well catch the +50. Of course, there's plenty of times where that aggressive trail and/or break-even trail will 'save' you from a loss.

 

I think it comes down to one thing - what are you trying to play or catch - smaller moves during the day repeatedly or a couple trades per day trying to catch the larger move (assuming there is one that day)...

 

The reason I ask that is I don't think it's easy (or possible) to do both - trying to time the perfect exit each and every time just won't happen with any consistency. You either have to make a conscious choice to go for the larger moves knowing that when it doesn't have the momentum, you'll take a loss or small gain or go for smaller moves knowing that it's more likely to be taken out, but you may be watching monster moves from the sidelines.

 

And you can alter your method based on volatility as well.

[momentom 10]

Exits have always been the most problamatic for me.

 

Ever since I came off the floor over 15 years ago I have been trying to stay in trades longer. my traders dna seems to be that of a scalper but I hate paying 25% of my profits to my clearer.

 

I found something that works. I put a basic trailing stop based on the old 10 period 3 Average True Range behind my position. It only kicks in after I am a "bit" in profit so I don't get shaken from the trees by a wiggle. I then manage the trade by exiting parts of the position based on my trading plan but use the ATR as my drop dead stop.

 

10/3 ATR is good because it takes the volatility of the last 10 bars as its basis. Some people don't use anything but the ATR to manage the trade.

 

I fiddled with the numbers of the ATR but 10/3 (which is pretty standard stuff) seems to be the best for me.

 

Hope this helps

[Guest cooter]

I found something that works. I put a basic trailing stop based on the old 10 period 3 Average True Range behind my position. It only kicks in after I am a "bit" in profit so I don't get shaken from the trees by a wiggle. I then manage the trade by exiting parts of the position based on my trading plan but use the ATR as my drop dead stop.

 

10/3 ATR is good because it takes the volatility of the last 10 bars as its basis. Some people don't use anything but the ATR to manage the trade.

 

I fiddled with the numbers of the ATR but 10/3 (which is pretty standard stuff) seems to be the best for me.

 

 

So if you put a Keltner Channel, which should be based on ATR, on your chart, with a setting of 10/3, this should show where your stop should be placed, correct?

[brownsfan019 17]

momentom - I've never done much with the ATR. Could you explain further what you use here and how it's used. When I threw what I found on MultiCharts (Study > Average True Range) I was given the option for the ATRLength and AlertLength. I assume the Alert is just some sort of alert when a certain level is reached. And the default setting is a line at the bottom of the chart, similar to a stochastics type line.

 

Just curious how you use this for trailing stop purposes as I am always looking to improve on this part of my trading.

[momentom 10]

momentom - I've never done much with the ATR. Could you explain further what you use here and how it's used. When I threw what I found on MultiCharts (Study > Average True Range) I was given the option for the ATRLength and AlertLength. I assume the Alert is just some sort of alert when a certain level is reached. And the default setting is a line at the bottom of the chart, similar to a stochastics type line.

 

Just curious how you use this for trailing stop purposes as I am always looking to improve on this part of my trading.

 

I calculate the ATR over 10 periods which gives me a number. I then multiply that by 3 and my stop gets racheted as price moves. Stop can get closer to price but never moves further away. I don't have an indicator I can share as its part of a set of indicators written professionally for a group of us, but it shouldn't be too hard to code. You made need the Tradestation function ATRcalc

[brownsfan019 17]

I calculate the ATR over 10 periods which gives me a number. I then multiply that by 3 and my stop gets racheted as price moves. Stop can get closer to price but never moves further away. I don't have an indicator I can share as its part of a set of indicators written professionally for a group of us, but it shouldn't be too hard to code. You made need the Tradestation function ATRcalc

 

Bare with me if you will - I put a 10 ATR on my ES chart now. The value is 1.625. That x3 = 4.875.

 

Now, what does that specific number tell me?

 

Again, sorry for the simple question but I've never gotten into ATR and would like to see how it operates as a trailing stop function.

[TinGull 10]

Hey Brownsfan,

 

I do go for larger targets (30-40 points) and 1-2 trades per day. Reason being, I don't care about getting filthy rich...just want to have the freedom, so I don't care if I make 4 thousand yM points a minute.

 

I think my stops do need to be a little looser...and yesterday I found myself in a choppy area thinking it might yield a bit more, which it didnt.

 

I might look into the ATR way of doing things. Sounds interesting.

[brownsfan019 17]

My suggestion Tin is to give the trade room to work then.

[TinGull 10]

Yea, I will from here on out. It hadn't been too big of an issue until the past 3-4 weeks.

 

As for the ATR x3...on the YM where I entered a long (5min chart) it shows a 10ATR at 18ish. So you'd multiply that by 3 and use that as your stop?

[momentom 10]

Bare with me if you will - I put a 10 ATR on my ES chart now. The value is 1.625. That x3 = 4.875.

 

Now, what does that specific number tell me?

 

Again, sorry for the simple question but I've never gotten into ATR and would like to see how it operates as a trailing stop function.

 

If you are long then your trailing stop is current price minus 4.875. As the market moves up, trail stop is recalculated after each bar and moved up - never down. The opposite for shorts of course.

 

Is this OK?

[Nick1984 10]

I'm confused we went from ATR 10/3 to 10*3?

 

Say the ATR of the last 10 periods was 100 for simplicities sake, then the stop would be at -30 100/3. You wouldn't have it 10*3 cause that would make a ATR of 100 a 300 point stop. Wouldnt the 10*3 be a your first profit target and 10/3 your first stop?

[brownsfan019 17]

Yea, I will from here on out. It hadn't been too big of an issue until the past 3-4 weeks.

 

As for the ATR x3...on the YM where I entered a long (5min chart) it shows a 10ATR at 18ish. So you'd multiply that by 3 and use that as your stop?

 

No idea, we'll have to wait for momentom's response.

[momentom 10]

I'm confused we went from ATR 10/3 to 10*3?

 

Say the ATR of the last 10 periods was 100 for simplicities sake, then the stop would be at -30 100/3. You wouldn't have it 10*3 cause that would make a ATR of 100 a 300 point stop. Wouldnt the 10*3 be a your first profit target and 10/3 your first stop?

 

Guys, back in the post I spoke about an ATR calculated over 10 bars, then taking that number and mutiplying it by 3 as Brown did. I called this the 10/3 ATR as shorthand, 10 and 3 being the input parameters of the ATR Trailing Stop.

 

Brown then clculated an ATR of 10 periods. I then agreed and said:

Quote:

If you are long then your trailing stop is current price minus 4.875. As the market moves up, trail stop is recalculated after each bar and moved up - never down. The opposite for shorts of course.

Unquote

 

Nick there was never a calculation of 10 divided by 3 - this would always be 3.333333

 

Hope this clears it up.

[brownsfan019 17]

This ATR thing may need it's own thread to be honest, but I appreciate the help momentom. I honestly have never used it or really looked at it, so any help and guidance is appreciated.

 

Here's a thread dedicated to ATR and I hope momentom can stop by: http://www.traderslaboratory.com/forums/f34/average-true-range-atr-2412.html#post18491

[nickm001 10]

I have found good presentation on stops by Chuck Lebeau. Some of the stops use ATR multiple.. hope it helps... If you use Tradestation, there is a open code for these stops available on forums

Stops - Chuck LeBeau.pdf

[maildigger 10]

if you trade 2 contracts:

 

hardstop = x

1st target = x

start traling when x is hit (I use amount x)

[brownsfan019 17]

I have found good presentation on stops by Chuck Lebeau. Some of the stops use ATR multiple.. hope it helps... If you use Tradestation, there is a open code for these stops available on forums

 

Thanks for sharing nick. That was actually a pretty good read. I have an idea after reading it... we'll see how it looks.

[TinGull 10]

Very interesting read!!!

[Jakew 10]

For my short term (intraday) trades I finally, after much anguish, came up with a hybrid profit exit solution. The exit is a target (always 30 points or about 0,4 of daily ATR - I mean I may adjust the 30 points to say 25 or 35 if daily volatility conditions change a lot, which did not happen over the last 2 years), but... once the target is reached I do not actually exit but apply a very very tight stop leaving it to the luck to either give me my target or continue with that position till the end of the trading day. Still far from perfect but easier on me than a plain target, a trailing stop or a time stop (end of day).