To Trailing Stop or Not To Trailing Stop....

An age-old question.

Are you exiting based on moving averages and/or other TA?

Do you think a trailing stop is better than not using one? I wrestled with this for an hour or two and decided that I'd rather take a loss going for my TP than a small profit. It's a long term philosophy I guess. I can't see myself using a Trailing Stop sometimes and not others.

A problem that confusing me a lot also.

Let us take an example:

buy EURUSD @ 1.2000 stop @ 1.1960 limit @ 1.2100
perfect trading model, uh?

the price move in favor of your direction, and is @ 2080

if you stick to your plan, what is the win/loss ratio now? The original 100:40 or 20 : 120?

Would be very interested in hearing your comments.

There is absolutely no reason in the world to let a large winner turn into a loser, or even a small win.

One approach is to set limits as to how much you'll give back.

Let's use your example where your target is 100 pips.

Let's say it moves 30 pips in your favor. If it comes back, get out at breakeven. You can always reenter the trade if it meets strong support. There's no reason to lose on this trade.

Let's say it goes to 50 pips. Be willing to give back 75%, which is 38 pips.

It goes to 75 pips to the good. Give back 40%, or 30 pips.

It goes to 90 pips, give back 25% or 22 pips.

A great saying I read somewhere is

Don't be a prick for a tick.

You can use your own figures, but the point is that as a position moves further in the money and closer to your target, tighten up your stop. The goal is to make money, not to hit targets, which, let's be real here, are pulled out of our asses using whatever method of TA we desire. The reality is you're sitting on 80 pips, the 100 pip target is not a reality, it's just a hopeful goal. So, why give it all back, as I've seen people do over and over again.

Exiting a winning position is the most difficult thing in trading. For many people, it's really not as pleasant as they think. If it continues in their favor, they tend to beat themselves up because they didn't stay in. If they give back too much, they beat themselves up for not getting out soon enough. Either way, you're beating yourself up when you've just accomplished the Raison d'Etre of trading.

One has to come to terms with their system of exiting winning trades. There is no right or wrong way per se, but there is a right way for your psychological make-up. Find it and stick to it. Make money and be satisfied you're doing a good job.

To me unrealised profit is the same thing as realised profit - I can't stand to give it back. I feel you need to protect your unrealised profits even at the cost of getting wipsawed.

For me it is, like everything else, a strictly empirical question, subject to optimizing for every method and every pair. I can just bring an example of how I take profit in a simple MA crossover method I use with GBPUSD. It took me lots of time to arrive at it, and now I'm content with it. Profit is taken by SL orders, whichever is triggered first:

1. When the profit reaches 34 p., set SL at break-even.
2. When the profit reaches 51 p., set SL 3 pips below the 61.8% retracement.
3. If 2.5 hours after a sharp movement (like the news) the price prints a narrow channel, set SL 3 p. below its border.
4. If the slow MA has moved 35 p. and more beyond its level at opening, set the SL at 6 p. from its other side (the position will be closed when the price crosses the slow MA in the direction opposite to the original cross-over).

This is just an example, my points are that my approach (a) is tightly related to the trading method and pair; and (b) all its parameters and their values were derived empirically, using rigorous back-testing and optimization.
HTH.

exits from a trade are more important then entries. a system should have exit signals built into it so it never hits your s/l. this will keep all the profit from being eaten up by your trailing stop. that said , having a crises trailing stop is always a good idea, because even the best systems get faked out

I don't use trailing stops ever. Ive been managing others money as well as my own for over 5 years now and can't say I have ever used a trailing stop. When I am in a trade I rarely put a stop loss, and if I have a take profit "area", I will sometimes sell at a profit as opposed to waiting to see if it hits my TP. It has happened too many times to me in the past that I would set a limit TP order somewhere near a resistance level on a long position, and it gets close and then turns around, losing me a lot of profit pips in the process. I don't look at it as leaving money on the table when I sell before it hits my TP because it is still a good trade, and I have learned over the years to be more safe than sorry, plus you never really know where this stuff is gonna move anyway. I also think the brokers mess with the trailing stops more than the regular stops. Bastards.
Just my 2cents
good luck

Some old trader told me that he only need to get 50% of the move to make good money. So he exits his position base on ema crosses.

If you would be satisfied with 80 pips, why not just set your TP to 80 pips? I guess that's the difference in me and you. The minute I open my trade, I let the market decide whether to move to my TP or my SL. It's a decision I make the minute the trade opens.

Now if I am not trading with TPs, then the Trailing Stop makes more sense.

arr,, trend is one reason 1 let my wining to loosing, that in the long run, it goes in the "right way", and while waiting that , i get a few (+) swap....

(i trade one way) no trailling and stop... in most case

I agree with this. Set your stops below/above where your system says you should exit. Too many traders use stop orders as the exit, but this only causes whipsaws. The real use for a stop order should be in the case of a disaster: when the market suddenly decides to run quickly against your position, or when you're not paying attention to the market (ie: away from computer).

Think of it this way: have an initial "mental stop" at say 1-2% against you, and get out when a price bar closes at that price. Then have an initial "disaster stop", which is the stop order you place with your broker, at say 3-4% against your position, so that it would only be hit if there was a sudden panic buying/selling on part of the market.

As for trailing that stop order, trail it at some distance from your "mental stop" or exit criteria (such as a S/R level).

BTW, never trail against your position with both your mental or disaster stop. Also, never say "well this bar closed below my mental stop... maybe next bar will close higher." If you don't have the discipline to stick with your mental stop, then it's probably better just to use stop orders.

I use a trailing stop quite often, since I hate sitting around watching the screen. But I think that I do better when I use it than when I rely on my own instincts, since (being a natural coward), I tend to get out of trades too quickly The actual distance I set it at depends on the pair, but I set it to move at the smallest level allowed by the broker. Personally, I'd like to have it move up pip-for-pip....

I just understand Trailing Stops yet.
If I have a trade with a TP=15 SL=15 and TS=6
How does the TS of 6 effect this trade? TS doesn't override TP does it?
If the price moves in my favor 6 pips does it move my SL up to it now so if my TP of 15 isn't hit at least I'll still break even with a TP of 6? is that right?
I've read elsewhere that it just moves the SL up 6 pips.
Thanks

Maybe you should take a look at this thread............ http://www.forexfactory.com/showthread.php?t=27286

Trailing stop doesn't work well with me. Trailing stop usually takes me out although in the end it goes my way. I set my SL and TP and that's it. I'll look at the market separetely if I need to exit. The market is too volatile to use trailing stop. My trailiing stop is 20 pips but that usually means the market will move just enough to stop me out. Of course, my stop can be bigger but that's not my style of trading to start with.

It largely depends how you trade I suppose. I use them very seldom. But I tend too just shoot for one pivot too the next pivot so I have clear entry and exit signals. But if I see one just shooting by one of my exit targets I'll likely set a trailing stop and a new limit. I've found them to be best used on something that's really taking off or something you plan on being in awhile, but most often it's hard stops and limit orders for me.

I am continuing to struggle with this issue.

Part of me thinks that putting a TS at breakeven after 50% of my TP is reached is very wise.

The other part of me says a trade never gets old (gets stale, whatever) and if the price moves back to breakeven, I should give it the initial stoploss to turn around.

Trailing Stops have never worked well because if you try to have a trail stop loose enough to not get knocked out by any random spike, you give up A LOT back to the market on the last final pullback (the one that knocks you out at a profit). If, in the other hand, you tighten the trail stop you get stopped out by any random market noise (any random spike).

I have had MUCH better results myself by carefully picking my targets and exit there or a limit order than letting it run under a trail stop order.

Don't Do It

I Always Regret It

Great thread! I have been giving this some thought lately.

I have to agree with Dopey - the target is the ideal, but if prices are close to the target and the market starts reversing you should be happy with what you got. Sure it might come back, but if it doesnt you have something for your time.

It comes down to risk/reward in the end. If you are 5 pips away from your target and the breakeven price is 50 pips back then you are risking 50 pips to get 5 more .