Using smart stops instead of trailing stops

[Soultrader 12]

I am surprised to see the numerous amount of traders who trail there stops based on percentage or points. From my experience trailing stops blindly is a sure way to get stopped out just to see a further move in your favor.

 

When I trade the Dow mini's I will always use a smart stop. Instead of trailing a stop by certain amount of points, I will manually move them 3 ticks above a pivot point. For example, if I am short the Dow and the market breaks below S1, I will move my stop +3pts above S1. If if then breaks S2, I will move my stop +3pts above S2.

 

Another method I use is by taking the 50% range from the point of entry and the price where the Dow is currently trading at. For example, if my entry is at 11200 and the market is trading at 11150, I will move my stop to 11175. The idea behind this is that if the markets retrace by more than 50%, the down trend is no longer valid.

 

Note: I scale out on all my trades. My basic rule of thumb is to scale out half at +10, a quarter at +20, and the last quarter using smart stops.

[Infinity_Tom 10]

Hi Guys,

 

I have seen a lot of stop loss, trailing stop, and other exit strategies used. I have used many exit strategies my self when i was trading in the dow pit.

 

I have found while trading my own account (years ago) and watching others trading now that one of the biggest problem traders have is not letting their winners run. I agree that being too aggressive moving stops will only get you stopped out before you get a chance to catch a big run. Markets are very volatile and big runs happen often.

 

Don't use a trailing stop. Use a multiple bracket order strategy. Lets say you set up a 3 lot multi bracket stragegy with a 10 tick stop, one lot limit profit order at 5 ticks, one lot limit at 7 ticks and one lot at 10 ticks.

 

Once your entry order is filled lets say in the ESZ7 you buy a three lot at 1570.00. You will immediately have a 3 lot sell stop working at 1567.50. You will have a 1 lot sell limit at 1571.25, a 1 lot sell at 1571.75, and 1 lot sell at 1572.50.

 

Ok, you are definitely protected by your sell stop. What you do is cancel the highest sell limit at 1572.50. What will happen if the market breaks is you will be stopped out, but if it rallies your 2 limit sell orders will be filled leaving you long 1 lot with an unlimited upside potential and a 1 lot stop. Now move the stop where you want to lock in a profit etc. If you catch a run you will maximize your profit.

 

Just my 2 cents.

 

Tom

[Reaver 10]

Thanks for the input Tom. Definitely worth looking in to. Have a good one.

[brownsfan019 17]

That's a good idea Tom if the it fits your style of trading. For some, myself included, trying to get too 'fancy' on the exits only causes more harm than good. Again, depending on how you trade, a multi-bracket may not work well. As with anything else, the end user needs to do testing on any strategy before putting into real trading.

[Reaver 10]

I am strill personally debating on my exit strategy, as far as what is optimal....So far, even though the scale out seems more psychologically rewarding, I am liking the all in/all out...but I am constantly testing to see what I like best. Thanks for the info again Tom...

[Infinity_Tom 10]

That's a good idea Tom if the it fits your style of trading. For some, myself included, trying to get too 'fancy' on the exits only causes more harm than good. Again, depending on how you trade, a multi-bracket may not work well. As with anything else, the end user needs to do testing on any strategy before putting into real trading.

 

Hi Brownsfan,

 

You are right of course. Everyone has their own style of trading and must use what works for them.

 

Tom

[Infinity_Tom 10]

I am strill personally debating on my exit strategy, as far as what is optimal....So far, even though the scale out seems more psychologically rewarding, I am liking the all in/all out...but I am constantly testing to see what I like best. Thanks for the info again Tom...

 

Hi Reaver,

 

There are many exit strategies available. Sometimes a simple in / out works best. This is a great forum and I truly enjoy interacting with traders. I know it takes guts and determination to do what you do. Best of luck to you all.

 

Tom