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Trailing Stops ??

  • #1
  • First Post: May 10, 2005 11:16pm May 10, 2005 11:16pm
Please pardon my ignorance with this phenomenon. I used them once on my mini-account after thinking I knew how it was used. I was wrong. The nice person at FXCM explained it to me and I read it several times in plain english.

Please give it to me straight.

Thanx

Adrian
  • #2
  • May 10, 2005 11:23pm May 10, 2005 11:23pm
Quoting Adrian548
Please pardon my ignorance with this phenomenon. I used them once on my mini-account after thinking I knew how it was used. I was wrong. The nice person at FXCM explained it to me and I read it several times in plain english.

Please give it to me straight.

Thanx

Adrian
Trailing stops rob you of your profits! They sound good in theory but any pro trader Ive talked to doesnt use them.
Timing is everything.
  • #3
  • May 11, 2005 5:00pm May 11, 2005 5:00pm
Trailing stops - if you mean moving a stop loss either up or down in the direction of a profitable trade then they are invaluable.

1. They lock in profits.

2. They prevent profitable trades turning into losing trades - thus protecting capital.

3. They can provide more scope to pyramid when trading on margin.
  • #4
  • May 11, 2005 10:22pm May 11, 2005 10:22pm
redart;


I'd have to disagree with your statement that trailing stops rob you of your profits. Although i admit that they give your trade less breathing room, i think it is more important to view them as a means to preserving your capital. And preservation of capital is the first order of priority for any trader.

You don't know of any pro trader using trailing stops? You probably haven't been speaking to long-term traders. I find it very difficult to believe how any professional trader, especially long term traders, could hold on to a profitable trade that might have taken days to develop and not move their stop to preserve some profits along the way. It's crazy. Imagine it! If you were this person and were up 250 pips right around non-farm payroll release time, you wouldn't move your stop at all to protect against a move that could potentially wipe all that profit out in less than an hour?
  • #5
  • May 12, 2005 3:27am May 12, 2005 3:27am
Quoting dvescio
redart;


I'd have to disagree with your statement that trailing stops rob you of your profits. Although i admit that they give your trade less breathing room, i think it is more important to view them as a means to preserving your capital. And preservation of capital is the first order of priority for any trader.

You don't know of any pro trader using trailing stops? You probably haven't been speaking to long-term traders. I find it very difficult to believe how any professional trader, especially long term traders, could hold on to a profitable trade that might have taken days to develop and not move their stop to preserve some profits along the way. It's crazy. Imagine it! If you were this person and were up 250 pips right around non-farm payroll release time, you wouldn't move your stop at all to protect against a move that could potentially wipe all that profit out in less than an hour?
Sorry my wife posted that. I hear what your saying about long term trading and I day trade (part-time). My comments are based on the fact that I dont wanna be stopped out of a trade just because my position fluctuated before taking off. What I should of said is that it depends on your trading style instead of making a blind statement. In my defense the only time lately that Ive had free time from work and the wife has been late at night
Timing is everything.
  • #6
  • May 15, 2005 1:20pm May 15, 2005 1:20pm
I was in a trade on Friday, short GBPUSD, and had a stop loss at 1.8560, and the market was at 1.8530 (I'm reliving these figures from memory so forgive me if I am wrong), there was a sudden spike in what amounts to no amount of time, that executed my stop loss and took profits, I wasn't watching at the time, and came back to notice that it quickly returned (like I said it was a spike) to 1.8530 and eventually to 1.849*, so potentially I had lost out on 60 odd pips.

Now I'm with Saxobank and I noticed the spike on their charts aswell as other graphs, including MG Forex, some were more "spikey" than others. What I want to know is, was this spike really market movement, or did the Market Makers such as Saxobank and FXCM spike to catch out all those with stop loss orders? The spike was quite spectacular to see on the graph! lol.

Did anyone else notice that or is it just me? lol
  • #7
  • May 16, 2005 2:46pm May 16, 2005 2:46pm
The forex market is basically a wholesale market populated by banks and the larger brokerage houses.

Spikes like this are normal!

The fx markets regulate themselves - and if a trader wants to spoof the market ( start a little feeding frenzy by suddenly bidding the market up or paying all the available offers) merely to sell and actually go short at a better level - they can - and it literally takes seconds.

Also if a trader wants to squeeze the shorts by bidding up the market to try and shake them out he can.

Also - nothing wrong in moving a market to try and take out a few orders - it's all above board and all considered normal in the interbank market.

It's normally the big players who get up to these kind of fun and games.

Or it could have been a genuine order feeding into the market.....
  • #8
  • Edited 11:58pm May 16, 2005 11:40pm | Edited 11:58pm
Quoting Adrian548
Please pardon my ignorance with this phenomenon. I used them once on my mini-account after thinking I knew how it was used. I was wrong. The nice person at FXCM explained it to me and I read it several times in plain english.

Please give it to me straight.

Thanx

Adrian
Adrian,
the trailing stops feature on FXCM is not good. It only moves your stop each time you move up another 30 pips (minimum setting) or more. The trailing stops feature on other brokers trade stations, for example Gain Capital (forex.com) works well since once it kicks in, it moves a pip at a time every time the price moves more than "X" pips from your setting. This is a mechanical trailing stop. Determining "X" is the challenge since there is no right answer. Sometimes the retracements are large and sometimes they are small. Consider the average size of swing and retracement you can see in the current trade. Also consider your minimum target profit objective(s).

Here are a few other ideas.

If you are going short, place the stop a few pips above the previous high or recent resistance (below support if long).

Another way to place stops going short is using a moving average that seems to be respecting a trend. Place your stop a few pips above the MA (below if long.)

Yet another way to places stops going short is to use a fib retracement such as .786, .618, .5, or .38 of the previous swing. In such case place your stop a few pips above one of these levels (below if long). A tip here is to look consider different time frames when choosing the swing to place the fib on. For example if you are watching the 5 min chart for a trend break, you may want to use a .618 fib on a the 5 minute chart or maybe consider the 15 min chart. There is no hard and fast rule on this but generally speaking, the faster the market is moving the less the retracement.

When I say a few pips, I have often seen price break a high or low by 1 - 5 pips to take out stops then reverse so I would use 6 - 8 pips from previous levels of resistance or support to allow for different chart prices and broker prices. Generally speaking, you may want to use a larger figure for MA's such as 10 or 15 pips above the chosen MA.

If you are determining the price from a chart to apply to your trade station, don't forget to consider the bid ask spread. Normally chart prices are the bid prices. The bid price is always the lower price and the price you can sell at. The ask price is always the higher price and the price you can buy at.

For short trades, you enter selling and exit buying so your trade station stop price on shorts will be the price you choose on the chart plus the spread.

For long trades you always enter buying and exit selling so the stop price on the chart is the same as the trade station selling price.

Edit: One more thing I forgot to add, your initial stop should be determined the same way except you need to calculate the maximum amount you would lose if your stop is hit and ensure this does not exceed your maximum risk tolerance (e.g. 2%). If it does, reduce the number of positions traded so they trade fits your tolerance and if it doesn't with only 1 lot then don't take the trade as it is too risky.

Pipster
  • #9
  • May 17, 2005 8:05pm May 17, 2005 8:05pm
That was one helluva post. Good information. I have been applying the stops as you had mentioned. I came up with that on my own after trial and error. At the time I figured it was worth a shot. I'd say it works about 40 to 60% of the time. I'm still trying to win the lottery to open a true account for trading. For now I'll live with my mini and demo. Thanks to all who posted replies, all the information both for and against will be taken into account.

Adrian.
  • #10
  • May 18, 2005 1:41am May 18, 2005 1:41am
Quoting Pipster
Adrian,
the trailing stops feature on FXCM is not good. It only moves your stop each time you move up another 30 pips (minimum setting) or more. The trailing stops feature on other brokers trade stations, for example Gain Capital (forex.com) works well since once it kicks in, it moves a pip at a time every time the price moves more than "X" pips from your setting. This is a mechanical trailing stop. Determining "X" is the challenge since there is no right answer. Sometimes the retracements are large and sometimes they are small. Consider the average size of swing and retracement you can see in the current trade. Also consider your minimum target profit objective(s).

Here are a few other ideas.

If you are going short, place the stop a few pips above the previous high or recent resistance (below support if long).

Another way to place stops going short is using a moving average that seems to be respecting a trend. Place your stop a few pips above the MA (below if long.)

Yet another way to places stops going short is to use a fib retracement such as .786, .618, .5, or .38 of the previous swing. In such case place your stop a few pips above one of these levels (below if long). A tip here is to look consider different time frames when choosing the swing to place the fib on. For example if you are watching the 5 min chart for a trend break, you may want to use a .618 fib on a the 5 minute chart or maybe consider the 15 min chart. There is no hard and fast rule on this but generally speaking, the faster the market is moving the less the retracement.

When I say a few pips, I have often seen price break a high or low by 1 - 5 pips to take out stops then reverse so I would use 6 - 8 pips from previous levels of resistance or support to allow for different chart prices and broker prices. Generally speaking, you may want to use a larger figure for MA's such as 10 or 15 pips above the chosen MA.

If you are determining the price from a chart to apply to your trade station, don't forget to consider the bid ask spread. Normally chart prices are the bid prices. The bid price is always the lower price and the price you can sell at. The ask price is always the higher price and the price you can buy at.

For short trades, you enter selling and exit buying so your trade station stop price on shorts will be the price you choose on the chart plus the spread.

For long trades you always enter buying and exit selling so the stop price on the chart is the same as the trade station selling price.

Edit: One more thing I forgot to add, your initial stop should be determined the same way except you need to calculate the maximum amount you would lose if your stop is hit and ensure this does not exceed your maximum risk tolerance (e.g. 2%). If it does, reduce the number of positions traded so they trade fits your tolerance and if it doesn't with only 1 lot then don't take the trade as it is too risky.

Pipster
one way to use a quazi trailing stop that goes along with what you are saying is to exit at the lowest low in 10 days if you are long, or the highest high in 10 days if you are short. (replace "10 days" with appropriate timeframe). this acts like a trailing stop but uses support and resistance levels. this is the exit used by the Turtles.
Relax and be happy.
  • #11
  • Last Post: Sep 9, 2005 1:54pm Sep 9, 2005 1:54pm
I am a newbie trying really hard to understand the forex market which I believe in. However, I am not getting along with with the terms. I tried using the stop on the Refco platfrm where i am using a demo but I lost a lot of pips 184 trading euro/usd.

Where can I learn with the aim of practising and in in simple understandable English what are stopstrailing stops grailz trading stops?

Someone out there please assist. I have been trading demo for about two months.

keniadeniyi
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