Exit Trades with Stop or Target Order?

[maxr 10]

Do you prefer to exit successful swing trades (intraday or longer) by placing profit target order/s in the book, or trailing your stop behind price (and maybe taking some profits on the way), till you get stopped out? I can see things to be said for both methods. If you set one or more profit target limit orders, you might get them filled on a quick spike that doesn't hold. On the other hand, targets are at best guesstimates (or we'd all be rich), so trailing a stop until it closes you out may enable you to get more out of a runner and avoid the 'wish I'd held onto that' feeling. Also, with just a position and a stop order there's less to remember, and it's not possible to accidentally leave orphaned orders in the book if your platform doesn't offer a good OCO system (worst overnight scenario - e.g. go long, price falls to take out your stop loss, then rises again, and your orphaned take profit order gets you in short when you don't want to be ). My own current preference is to get the stop to breakeven as soon as practicable, take profit on 50% on any weakness or at a conservative technical target, then move the stop to breakeven or better on the rest and trail till it closes out. Any views?

 

Max

[SIUYA 11]

currently as a WIP trying to automate this a little but generally what I do is much the same as you.

1) place order, get it to Break even quickly or exit as I am wrong.

2) Take a small profit on some (my guesstimate is always about 50%-66% - no reason for this number) at either a set target take profit level or just when I feel the move has had enough.

3) HOWEVER. On the remaining amount if the stop is at break even, I dont have a trailing stop OR a target...... its letting it ride. (this is the part of the automation I am working on, as you still need things in place to monitor and look after these runners)

[MadMarketScientist 11]

I'll throw my opinion in.

 

I think you should always have a fixed target on part of the trade. Exit 50% and trail the balance or some split. The reason is trailing is very subjective and when you trail you will have a lot of trades turn against you and that profit feeling you felt will disappear. Even if in the long run it makes more, psychologically that is tough.

 

Next, I agree -- try to figure out a break-even level if nothing else first. I usually do this -- my profit target that is fixed, becomes my break-even trigger for the balance I'm trailing. For example, if I go long on something at $50 and exit at $55 my profit target, then the balance I'm holding the stop goes to break-even at $50 worst case -- and then I'll kick in whatever technical trailing strategy I'm using -- if it was to say the stop should be below $50 I would not lower it below. That's break-even worst case once out at fixed target.

 

Also, in years of trading for whatever reason I have found that I never really get any type of great edge trailing - at least if I'm talking short term day trading or short term swing trading. Yes, on occasion there are some amazing trades -- but it's interesting when I compare my bottom line results the trailing is never much better, and sometimes it's worse overall -- so for all that extra work and sometimes stress I'm not sure it's worth it.

 

Maybe longer term timeframe it's different.

 

MMS

[AlanP 10]

Kind of agree with MMS point that overtime it evens out. I guess it's a trade off of catching a big late move vs stress of wondering;-))

 

I have often thought that a Trailing/Leading Take Profit order would be good - where you traded as normal but kept a TP say 30 - 50 pips ahead just to catch a sudden spike. Probably not to difficult to program and probably someone already has!

 

cheers

 

Alan

[maxr 10]

That's an interesting idea, Alan - if you entered a trade with an OCO of Stop/Target 1/Target 2, then if you got target 1 filled and stop to breakeven, you could trail target 2 outside price on technicals. You could then exit the second half manually on your regular trail stop at a bar close if it appears to be running out of steam (e.g. extreme of last 3 bars / n x ATR / 2 closes wrong side of 5 EMA, or whatever you use), but otherwise have a limit order in the book waiting to catch a quick spike if it happens intrabar when you're not looking. If you also trailed the stop loss manually at better than breakeven, you'd eventually either get stopped or spiked out for a profit. Could possibly reduce those DAMMIT! moments when you look at your 60 min chart 55 minutes after the last time you looked, only to find it's spiked in your favour then retraced again. If you programmed it rather than trailed the take profit manually on technical targets, would the take profit order not always be ahead of price?

 

Max

Edited December 14, 2010 by maxr

[GTNew 10]

My new Mantra is: "Trailing stops, just say no." I always get stopped out only to see the move continue in my anticipated direction. I gave up on that strategy.

 

Since I started using Ichimoku, and trading primarily the 1hr and 4hr chart, I find that exiting at a Target price or zone gives me better overall results than trying to hold through the inevitable retracements that occur. This is especially true in a trading range environment. Another thing to consider is "when" you trade. If you're trading in a period of low liquidity, say after the NY close, there's a good chance stop hunters will get you if your stop is too tight. I now trade only when both London and NY are trading. I exit prior to the London close. Of course, if you are trading the daily or weekly timeframe, this would not apply to you. The longer the timeframe, the wider your stops need to be. It's more an art than a science.

[maxr 10]

GTNew wrote:

 

I find that exiting at a Target price or zone gives me better overall results than trying to hold through the inevitable retracements that occur.

 

Thanks - so what kind of protective stop do you find works best with your methods?

 

Max

[GTNew 10]

I usually try to enter the trade off a candle, often it turns out to be a bullish/bearish engulfing line. I will put a stop above/below that swing low. On a 4hr chart it could be between 100-200 pips, but sometimes less. Obviously, money management is important. I find that stops <50 pips invite stop hunters and often get triggered. I am only speaking from personal experience, not trying to influence anyone.

[MadMarketScientist 11]

Great discussion so far.

 

Following on GTNew I do agree in your discussion of forex and stops under 50 pips. Whether it's hunting or just the volatility of the markets when stops are below that you do have a much higher tendency of getting barely taken out only to watch your market take off on you.

 

I've found when I trail, and it's not that often, I make sure I have a way/rules to re-enter after a stop out on a trail in case I get whipsawed - many times those second entries tend to be stronger than the first as well......something to consider.

 

MMS