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Joined: 3/25/2005
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It has occurred to me from reading post in the past that many of you may not know what 'Cut Your Losses Short But Let Your Profits Run' means.
I think all of us probably understand what it means to cut your losses short means. So I won't elaborate on that one.
But, Letting your profits run, does not mean that when you are realizing a nice profit in your trade that you should necessary continue with the trade just because it looks, for the moment, like it has limited downside and more upside to go or just because it hasn't reached your projected profit target -- NO, NO, NO.
'Let Your Profits Run' Is Very Simple -- It simply means set trailing stops once you are in the profit zone. There is nothing more to it than that.
If you understand what happens with trailing stops after you set them then no further explanation is needed here.
Cheers,
mp
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Joined: 4/18/2005
Posts: 4,090
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Actually trailing stops can still be a bit confusing. WHERE to set them? What criteria to use... when to adjust them ..... That's the hitch.. IMO your philosphy of using trailing stops needs to be complimentary to your strategy.
You wouldn't say mak a swing trade of an estimated month and use the recent candle low except in some prety specific circumstances. Just like you wouldn't take a small gain type of trade but leave your stop set 3 points below current price.
it all sounds easy but when you are in a stock and you've got some proffit ... there is the risk of seeing that proffit become a loss (trust me).... how and when to mov it up. Or if the stock you are in changes characteristics? It's all to easy to think you are letting you proffits run and cut them short with to tight a stop.
Then there is the whole aspect of the transaction price with a stop... Which are usually STOP MARKET. So if price traded at 7.00 last that dosent mean that if you place your stop at 6.89 you'll get out at 6.89. First of all price will be falling when your stop is triggered and since it is a market order fill price is not a factor. You'll be filled at the bid so if price falls fast enough the last transaction right before you could be 6.90 with a bid of 6.85 and an ask of 6.92. you'll be exited at the 6.85 or worse. This is all splitting hairs of course BUT it can make a difference ... particularily with 1000 or more shares. .20 of slippage like this is $200 per thousand shares. something to think about. I generaly prefer to make my exits with limit orders. If I see that price is falling from resistance I thought would be punctured i'll put a limit orer on the previous days high or a few cents above teh close and try to get out on the early fluxuation. Idealy I set a target and put the limit there and price hits it and I get the amount of money I calculated on ... if it moves past I can reevaluate and reenter later.
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Joined: 3/25/2005
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You're overcomplicating things.
First of all you need to be able to anticipate what you can reasonably expect to minimally make as your profit (the beginning of your profit zone); (Your Target Price Projection would be the end of your profit zone). For instance, I expect my minimal profit in any trade to be at least 1.00 (the Atr range of the stock price can help one in selecting stocks that can render this minimal profit expectation).
Once my minimal profit expectation is reached, I want to protect my gains. So, set a trailing stop a few cents below the current bid/ask where your minimal profit has just been achieved (.10c or less is a reasonably setting here). Granted, your stop, when triggered, will become a market order which could sell at price that will cut into your minimal profit gains but this will not always happen. Furthermore, as the price continues to rise and adds to your minimal profit gains, you are then currently 'Letting Your Profits Run' and the trailing stop is moving up behind the current price as it rises. So your trailing stop will only be triggered if the price begins to fall back after the rise.
This scenario is meant to show how you can keep your profits from turning into losses.
After or when a trade is entered, you would initially set a hard stop -- not to be moved ever.
But, when and if your trade enters your minimal profit zone before it touches the hard stop, you would, at this point, remove the hard stop and set trailing stops while you are in your profit zone.
If the trade touches your hard stop first then you have 'Cut Your Losses Short' -- So on to the next trade and the next stock, at this point.
I created this post specifically with you in mind, Scott.
Why would you ever let a profit turn into a loss?
If your trade starts out with a loss and your hard stop is triggered then that is one thing.
But, if your trade initially puts you in the profit zone then you should want to protect what you have gained.
In other words, it is inexcusable to have a profit and lose it.
But, there is nothing you can do about a trade that starts out by triggering your hard stop first.
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Joined: 10/7/2004
Posts: 264
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In my opinoin, the "let your profits run" advice can be very dangerous. That one rule has, in the past, ruined my trading and I no longer look at it as a valid rule. I think it must be taken in context.
First, if you are a trend trader -- trying to catch a longer term trend and ride it out, then by definition your methodology demands that you let your "profits run." However, like Scott says, setting a trailing stop has its own issues.
If your trading swings, counter trends, bounces, price levels, etc., then I don't think letting your "profits run" is necessarily valid. I have found it more helpful to set a target and get out at that target. I'll miss a big trend move from time to time, but I'll make consistent profits instead. Good luck.
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Joined: 3/25/2005
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You are both missing the point of what I am saying.
The whole point is to try to hold on to the profits that you have already gained.
Trade swings, counter trends, bounces does not apply here in my argument.
You set trailing stops only when in your profit zone to protect what you have already gained, period.
You set hard stops to be kept for as long as you have not crossed into your profit zone, period.
Also, limit orders should be used for entry and market orders should be used for exits -- that goes for stocks and options.
But, everybody's got an opinion so
Good Luck to you to.
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Joined: 10/7/2004
Posts: 264
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Actually, I understand exactly what you mean. However, how do you define mimimum profit? When do I trail my stop? When I get to a 1 x risk profit (1R)? Or 2R? Or 3R? I have on numerous occasions looked at a 3R profit target, achieved a 1R profit, and gotten stopped out trying to get to 3R. On other occasions, I have trailed my stop at 1R only to get stopped out before the move to 3R.
All I am saying is that focusing on letting your profits run may ultimately be detrimental to your trading style. It all depends upon your trading style and the research you have done so you know what to expect in terms of setting a target. I find that for trend trading letting you profits run is a good idea. For other types of trading, I don't think it is all that helpful.
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Joined: 4/18/2005
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Memorable products ... I thank you for your effort and concern. understand the basic gist of what you are saying. my only point is that it's a grey area.
Example AP I got whip sawed on today. I entered at yesterdays close +.25.. Now the rest is my fault but I felt like the broader market has been running for a bit so if this wasn't a momentum run I'm not certain I wan't to be in it. Now I was just under the high of the day.... then a beeline to my stop that was at the base of the candle... However EVERYTING in my portfolio suddenly flipped so I moved to an intra day stop under previous days 5min consolidation. got hit and then price ended the day not looking so bad and probably flat had I been in it.
So I was in proffit of $30.00 for about 5 min. Now I consider that the stop could have been under the low of 10/8 with a higher possible target. But this put a larget amount at risk. I decided if I didn't get action like early July I probably didn't want to be in this stock at the moment.
I didn't get that and looking at it now... It looks like today was little more than a resting day .... so I may try again tomorrow. BUT at the time price was falling and falling fast ACROSS ALL my holdings. I watched my ESLR gains go from $260 to negative territory alone...
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Joined: 3/25/2005
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Well, in using your example, my point would be: So what if all you can achieve is 1R before you get stopped out. You still made a profit and not a loss, right?
In some cases, a trailing stop can lead you all the way up to 3R -- then you can really rejoice!
But, 1R is better than a loss and IMO, this can be applied to any trading style.
But, you have to know when you are in the 1R so that you can go into your account and set the trailing stop then and there.
If you can't constantly keep your eye on the trade so that you will know when you are in 1R, then use an alert system to your cell phone.
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Joined: 5/1/2007
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Memorable - if it works for you, great!
But your system and mine are about 180 degrees apart. There are multiple working systems. Mine is to watch the slow stochastic, MACD and then pick unjustly battered stocks. Example: GOOG did not get battered enough (less than $3 by EOD) but, say, ALTR did - down to the bottom of my Bollinger band, and off 2.7%. After a day like Thursday, I start hunting - but may not go all in for 3-5 more days. I *tend* to ride my losses - but jump if it doesn't *feel* right - and my bailouts have saved at least 80% of the portfolio - and now that I can buy QQQQ or SPY on days where the market looks good but individual stocks only marginally so. I've paid my hard knocks education fees by learning that trends last longer than I expect, but when they're over, go neutral, detach emotionally, and enter the next trade with an open mind.
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So tllucero, if I understand you correctly, you are saying that a large part of your system is to bail if it doesn't feel right and this has saved you at least 80% of your portfolio?
Man, that is some good guess work you got going there. Personally, I would prefer a more mechanical approach though like using a hard stop that I won't waver from. I don't think I could make a system work as well as you can by getting out when it doesn't feel right. That's some talent you got there.
----------------------------------------------------
Scott, you seem to be all over the map when deciding how to set your hard stops.
In the example of AP, you said you considered placing your stop under the low of 10/8 but this would be too much at risk. Well, if you are going to use that as your stop then you would lower your risk by adjusting your position size right? You know: ($$$ at Risk) / abs(stop - entry) = shares traded -- also known as risk management?
No matter where you place your hard stop, always determine how much you are willing to risk first.
For instance, is it 1% of, let's say, a $50000 portfolio? If so, then you would be willing to lose $500 on your trade. So, $500/ abs(43.87 + .25 - 40.81) = $500 / 3.31 = 151 shares traded. So, if you stop from 10/8/2007 gets hit then you lose $500.
My point: whatever your stop is, adjust the number of shares you trade according to how much you are willing to give up on the trade if things go south.
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Joined: 10/26/2005
Posts: 238
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MP Your post above should be required reading. But you should have posted it a day earlier it would have saved me $142.00 today. If I would have got stopped out at break even and wanted to get back into the trade tomorrow it would cost me $2.00 turn around Sense letting my small profit turn into hitting my hard stop loss I now have to make up $142.00 AB
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Joined: 4/18/2005
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Memorable products. I had a longer more detailed play by play break down of the three aproaches I open myself through. But that got dropped and only the chart below was in my clipboard.
Basically my ideal signal comes left side of the chart... as price moves up and then drifts back to the region of the 20 ma or idealy between the 20 and 50 it's a chance to rebuy or add too. buys and stops are marked. The momentum run that culminates in an exhaustion volume move at the peak is my ultimate exit signal. Exit by way of limit at the previous days close and a stop moved up just below.
Right side is a break out and a momentum entry. Explained. The breakout is generally a longer trade time and stops are moved up only after price moves upand consolidates or retraces and moves again. I don't do much of this trading right now but need to start doing more.
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"my small profit turn into hitting my hard stop loss I now have to make up $142.00 AB"-----
WOW. I lost $700 the day before alone. today i watched $600 gains swing to a $40 loss in the time it took me to walk tot he post office and back. and three days ago it was another $800 loss from multiple stocks . One was a gap .. the biggest loss . .. so no stops can help there. And the rest was the culmination of "wiggle room" ranging from a point to .40 across several stocks. But when you have between 200 and 800 shares of up to 7 stocks you'll expect some fluxuations. Most were New positions.
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Joined: 3/21/2006
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I think that for mechanical trading systems Memorableproducts maks a very good point. He is successful because he knows how to work his system and manage the trade. Myself, my trading style is more in line with Tllucero. I rely on technical analysis and chart pattern recognition to find my stocks and for my exits I rely on Candlesticks, support levels and trendlines. (It works for me).
I have noticed that most traders that are losing capital is because they do not know the art of managing the trade.. Using Trailing stops is a very powerfull way of managing the trade (If used properly).
So as not to get off the topic of Letting your profits run it all depends on the time frame. When I am swing trading I like to sell as the buying pressure is at its peak (no stops) I will miss the last part of the rally but I still have my profit. When my time frame is longer say intermediate then When in profit it would be a good idea to use a trailing stop.
(IMO)
Apsll.
MP see you at 4pm
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Joined: 3/25/2005
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Can't Apsll.
Last 2 weeks I've been helping a friend run her business while she recovers from illness.
She has a lot of paper work backlogged and I been helping her to catch up. Haven't had time
to do much of anythingelse lately. Things should get back to normal for me on Monday though.
Later,
mp
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Registered User
Joined: 3/25/2005
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Right Scott,
If I were a chartist, I would strategize similarly.
In using your example, I would first need the 20sma to be above the 35sma and the 35sma to be above the 50sma and the last candlestick low to be above the 20sma before I would consider entering the stock. And, I would probably use the 35sma as a support or stop.
More specifically, instead of using the 35sma, I would use the 30sma and 40sma where the 30 sma would be considered my support.
So, in that instance, the 20sma should be above the 30sma and the 30sma should be above the 40sma and the 40sma should be above the 50sma with the last candlestick low being above the 20sma before I would consider entering the stock.
But, I am not a chartist. So, take it for what it may be worth to you if anything.
mp
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Joined: 3/25/2005
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Thanks AB, Apsll
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Joined: 4/18/2005
Posts: 4,090
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Memorable products.
It is worth something. I persanly try to enter on periods of low volitility and after pull backs. There are various different dynamics to the above setup but elementaly I don't think there is a big difference in the first entry wether or not the ma's are completely aligned. also if I wait for all the above to be true i've lett 3/4 of the first and often biggest swing go by. Now i'm perfectly happy to find the above conditions.
PNW is a prinme example of one of my recent trades and that seems to be taking off now. I am more cautious att he beginnig and tend to be more likely to exit quickly
BIOS is another and I think closer to what you are talking about. nfortunately I exited this as well, proffitably but I left a considerable amount on the table. My caution there was the current trend has gained so much and it was as far as I could see at resistance... but the short term seemed to be setting up a nice swing so I tried to take it. could have held longer. Obviously the above is a best case scenario but I take so many of my proffits early becasue it seem like to often they revers and become losses if I don't. So taking allot of smaller gains is my aim.
But again since my schedule is about to get much bussier I wont have time to micro manage trades and need to start capitalising on larger swing and longer hold times. I'll still be using the Joint signal but the short term performance will probably drop as I pick up more whipsaws and false moves buthe good moves are better capatilized and in purchasing in strenghth trend moves such as BIOS and PNW above I should have higher probabilities of getting into some good swings. Other indicators help filter out the good and the bad.
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Joined: 9/14/2007
Posts: 38
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Ok It seems we always go back and forth here with the same issues. Everyone has different goals and trading style so no one way can serve everyone.
Trailing stops can be beneficial if set properly and if profits greater than the set on your stop - so that scenario would work well and would give you some peace of mind at that point. But of course it doesn't take care of overnight changes in price of the stock. And acknowledge that you are telling the MM for your equity what your intentions are.
So you are not covered from day to day 100%, you let your major enemy within the trade know your intentions, and if your stock is very volitile in intraday sessions then you will be taking a lot more risk than you should if you want your trade to breathe, or you can easily be shaken off on a low % trailing stop.
You will only make money on your trades when you first ACCEPT (and I think we talked about this in the past) that you have lost your preset % (your risk). You do that by purchasing options to leverage the trade. And it doesn't mean that you have actually lost the insurance money (just like you can cancel you insurance policy if you no longet need it and get a refund for the remainder of the time left on the policy).
The option give you peace of mind, time, and certainty, but you must accept and pay up front it is as easy as that. And of course this is different that the intraday leverage of buying and selling options on the fly to cover or leverage a 15 min move.
I strongly recomend entering stock orders in one order entry system and options in a different one (meaning different accounts at different brokerage)
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Joined: 4/25/2007
Posts: 91
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Interesting thread. it is true every one develops indidual goals, styles, strategies, systems and control but one must develop position sizing and risk managment rules. What MB is stating are: position sizing and risk management rules, in form or other has to be developed and followed to consistantly to be a successful trader or investor -- Jay
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Registered User
Joined: 4/25/2007
Posts: 91
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Interesting thread. it is true every one develops indidual goals, styles, strategies, systems and control but one must develop position sizing and risk managment rules. What MB is stating are: position sizing and risk management rules, in form or other has to be developed and followed to consistantly to be a successful trader or investor -- Jay
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Joined: 3/25/2005
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QUOTE (lBigBlock) But of course it doesn't take care of overnight changes in price of the stock. And acknowledge that you are telling the MM for your equity what your intentions are.
BB, I know you are a fan of Ameritrade so I would like to ask if they offer the trader the opportunity to employ "hidden stops" as does Etrade?
Also, I agree that buying puts is a good downside protection strategy provided you have an options account (which it seems that most people here, don't).
mp
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Joined: 1/28/2005
Posts: 6,049
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While this may have been intended to illustrate
simple trading techniques or objectives.
I think this is a very deep topic and is one of the
reasons many traders (especially new ones)
fail. At its heart is human nature and psychology.
I also think that this goes deeper than a simple trade.
---------------------------------------------------------------
Sometime in early 2005 I advocated to a group
of traders that I know that AAPL and GOOG
would be good stocks for longer-term holdings.
They immediately stated "too expensive" , "past
my buy points", "wouldn't touch it with your money".
AAPL approx $40 now $160
GOOG approx $180 now $620
On a certain level this is also cutting your profits
short. Rather then letting the stock tell you it was done.
You were smarter than the market. You decided the
party was over before it had begun.
This is one of the reasons I'm not a big fan
of overbought/oversold (except in the short-
term). I've seen too many times what was
"expensive" continue to rise and what was
"cheap" continues to fall.
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Also, if a new trader owns 10 stocks and 5 are
profitable and 5 are not. They will generally
look to sell the winners and hold the losers.
A) You are taking profit
B) You are not "wrong".
C) You hope the losers will turn.
Those with more experience know that you are
developing the bad habit of getting rid of what's
working for you and keeping what is not.
----------------------------------------------------
Many will look for bottoms. This appears
safe. You are buying value. Of course, to others,
you are buying failure, weakness and what
hasn't worked or is not working.
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This also has to do to a certain extent
with the whole concept of riding a
bull market. How many move to cash
too quickly raise cash for "safety"?
How many miss moves as they wait for
conformation.
----------------------------------------------
I think this has to due with human nature.
When you have loss you know exactly
what is wrong. When you "miss" AAPL
and GOOG because it seemed as if
there was no risk. There seems to be nothing
wrong. Of course if you continually throw in the
towel too early it will cost you.
-------------------------------------------------
I think the confusion here is because it is not
about a single trade or method. Ultimately
your trading will boil; down to a win and loss
column. You only need to win %30 of the time
as long as your wins are large enough.
(the larger win is at the heart of trend
following systems. You are often wrong
more than right.)
Every time you decide a trade is "over" or
a trend is "done". On a certain level you
are taking "risk". (even with profit)
It will be the larger profits that take care
of many losses.
This is why you need good records and
a good idea of how your trading systems
work. Also to be on the lookout if something
is starting to fail or change.
Ultimately when the win/loss column
is tabulated. The profits that you
don't allow to "run" will cost you.
.
This is much more difficult to "see"
than the trades that fail.
----------------------------------------------
Thanks
diceman
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Registered User
Joined: 9/14/2007
Posts: 38
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Memora the answer to your questiong is yes - Ameritrade has what they call triggers, which can perform the same as the hidden stops in e-trade and a lot more. I must recognize that hidden stop is a much better marketing name for it. But the funtionality is the same. Just a set of rules that trigger an order. Suppose those triggers are not visible to the MM, but I hear otherwise from wise aquantainces in high places. So no matter what they call them, invisible, hidden, ghost or else they are not what claimed.
The only way the MM doesn't see is when you don't show him at all. Until them he is blind for you just until you click the sell or buy order button. They have 30 sec to make up their mind. I have seen stock drop half of their value in that time.
good luck.
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Joined: 12/21/2004
Posts: 902
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While I agree with the idea of a trailing stop as a good means of protection, I'm finding in my use of it that it is stopping me out of the more volatile stocks before I have reached my goals. On a trending stock I am willing to tolerate volatility if I believe in the longer-term that that the price level will ultimately rise to where I want it to be. But more often than not, I get shaken out during a daily gyration that ends up being inconsequential in the run of the stock. So my alternative seems to be to set my trailing stops at a rediculously high percentage rate, which almost seems to defeat the purpose of the stop.
What percentage rate do those who use trailing stops consider to be "acceptable"?
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Joined: 7/28/2007
Posts: 118
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This issue has perplexed me since I made my first trade on Sept 24. I have experimented with 3%, 5%, 6%, and mental stops. I have stopped out several times already only to watch price rise without me in the position. I have found the danger in mental stops is that I tend to cost myself profits, because once I get a good move I tend to either place a tighter stop, or sell to protect a minor gain. I am up 3.2% so far, and winning more than losing.
I am going to experiment with the trigger (hidden stop). My account is with Fidelity and I have no idea if the MM's will be able to see my price trigger or not. I cannot worry about things I cannot control.
Along those lines, what is considered a good stop or trigger to sell when you are holding a stock for a position trade (medium term). I have read 8% somewhere.
G
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Joined: 3/21/2006
Posts: 4,308
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Others have stated it here before and I just want to echo their point. Percentage Stops are not good.
The one thing that I agree on with Bigblock is that if you hold a security over night then you are at risk for a gap down in price. That said I hold over night 95% of the time, and I feel safe because I trust my ability to pick a strong stock. (that does not mean that I am not taking a risk).
Grizzled1 appears to be looking for a solution to his Stop Problem, So my observations are more directed at him right now.
I like to rely on strong support levels, or I test different moving averages on the past price action of a given stock for support also. Before you take a trade you should have this all planed. If the entry that you want is to risky then do not take the trade, (there are lots of opportunities out there, you do not need to take on unnecessary risk). I also look at the candlestick patterns for my exits, but candles can reverse on you very quickly. I look at trend & momentum indicators to see if price is over-bought , (Stochastics and MACD-H are good tools for this). Lastly if you are going to use percentage stops then make sure that they are Hidden.
I want to clearify what I mean by strong support. When price has conslidated or moving in a very tight sideways pattern and price breaks free from that level then that level can now be used as a support, and you want to put your hidden stop right under that support level.
In my chart here you will see what I mean. Notice that during the consolidation level from late June through August price never droped below the support (Consolidation) from mid April through mid June, however there were a couple of low spikes in August that would have stoped you out of the trade had you been using a Percentage Stop.
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Registered User
Joined: 3/21/2006
Posts: 4,308
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What width is everyone now using for their pics?
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Registered User
Joined: 3/25/2005
Posts: 864
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QUOTE (Apsll)
The one thing that I agree on with Bigblock is that if you hold a security over night then you are at risk for a gap down in price. That said I hold over night 95% of the time, and I feel safe because I trust my ability to pick a strong stock.
Exactly. I could not have said it better myself.
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Joined: 7/28/2007
Posts: 118
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Thanks APSLL. One example that I did not stop out of but does not show clear support for me to use as my hidden stop is FRG. I entered on 9/21 and placed my stop at 9.55 based on the previous days candle plus a few cents. I exited on 10/10 at 11.41. My first trade and profitabel no less! However I left money on the table for no apparent reason.....
I also entered EMKR on 9/24. This time I used prior support and set the stop at 8.15. Where I messed up on this one is not moving the stop up and letting the profits run after it broke thru prior resistance. I got greedy I guess. I got out on 10/1. EMKR was clear as to how I should have managed this trade, FRG I am not sure......
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QUOTE (grizzled1) Thanks APSLL.
I also entered EMKR on 9/24. This time I used prior support and set the stop at 8.15. Where I messed up on this one is not moving the stop up and letting the profits run after it broke thru prior resistance.
You should say: Where you messed up is not setting a trailing stop and letting the profits run after it broke thru prior resistance. You shouldn't ever want to move your hard stop after you set it -- you should, however, want to remove it at some point and replace it with a trailing stop after you become profitable in the trade.
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It has occurred to me in reading your post that some of you may have a few reservation about using trailing stops perhaps because you may be too greedy.
In conversing with Golfman on this thread, he made me realize that other of you who have resevations about trailing stop may be think the way he is. Essentially, Golfman was saying that he wants it all.
In other words, he sited an example of maybe not being able to achieve the 3R profit level because a trailing stop might stop him out too soon at 1R. The way I look at things is that 1R is still a profit. But, the way he looks at it is that if had not used a trailing stop in the profit zone he might have been able to get the full 3R profit -- This is what is known as GREED.
GREED can cost you. So don't get greeded. Just accept that you made a profit and move on to the next trade or else you may end up with no profit at all. Because the less mechanical you are about managing these trades, the more emotions will tend to take over.
Don't get me wrong, Golfman -- I not picking on you. I just think that your post makes the greatest illustration that I can think of for why the objectors of trailing stops here have reservations about its use.
mp
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Joined: 3/21/2006
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MP: I am not sure if you have answered the big question yet, I have read the whole thread, so if I am being redundant then let me know.
How far back do you place the trailing stop? You have to enter a number or percentage when placing the conditional order. The battle is trying to protect profit and yet give the stock a chance to breath or pull-back from time to time. You know how the Market makers like to tease us with the one day reversals and those long skinny tails, just enough to make our stop loss impotent.
That is why I like to use support levels, if price breaks through a strong support then that means somthing is rotten in Denmark and you want out ASAP. Also you should diversify your portfolio, if you have a position in lets say five stocks then it would be a rare situation if all five stocks were to head south on you so when one stock breaks support then you just feed more capital to the best current performing stock.
I am not trying to counter your argument for using a trailing stop just giving my point of veiw.
Apsll.
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Registered User
Joined: 1/28/2005
Posts: 6,049
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"Essentially, Golfman was saying that he wants it all."
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I think now the nail has finally been hit on the head.
What are we supposed to never have a trade fail?
(imagine a baseball player being upset because
he does not get a hit every time he is at bat.
He does not have to)
Realize that nothing is free.
If you use a stop of yesterdays low. You maybe safe (risk)
but your trades wont last long. (profit)
If you stop is 10% it may look like more risk but your
trades will last longer and you have a chance of real profit.
So your profit and your stop are not separate issues. They
are the same issue.
You cannot at the same time have maximum protection and
room for large growth. You must give a little to get a little.
I have never been able to find the perfect stop. (I don't know
if it exists)
In order to balance it out. I trade things that sell strength, use
indicator stops, trailing stops, and price stops.
The key point is your stop method has to be married to
your profit method Attempting to trade a long-term trend
and using yesterdays low as a stop wont work.
Buying short-term oversold and selling short-term overbought
maybe more successful with a tight stop.
Thanks
diceman
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Registered User
Joined: 10/7/2004
Posts: 426
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I agree with Apsll on using support levels for stops. Of all the trading systems I have backtested, using trailing stops is a sure way to limit your profits. I have optimized trailing stops for the best profit on several systems and came to the conclusion that using trailing stops will limit your profits. I know they sound good but in reality they just don't work.
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Registered User
Joined: 3/25/2005
Posts: 864
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QUOTE (Booker) Of all the trading systems I have backtested, using trailing stops is a sure way to limit your profits. I have optimized trailing stops for the best profit on several systems and came to the conclusion that using trailing stops will limit your profits. I know they sound good but in reality they just don't work.
Booker, you are making my point.
You're not willing to settle for mediore profits when you just know you can get more (This is the Greed Factor).
Trailing stops can be used when you are in the profit zone to make sure you get
something for your efforts and yes, occassionally the stock will be so hot that the
trailing stop will follow the price rise all the way to your highest expectations. But,
you are right, you can't count on that happening most of the time.
Trailing Stops Do Work. But, you are saying what all the others who are against
trailing stops are saying -- They Don't Work Because They Limit My Profits. I Want More!
This is exactly what I am trying to convey to you and the others -- It's called GREED.
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Apsll, the way one sets trailing stops is a personal style for each individual.
Personallly, I don't use percentages for this.
And, the difference between a support level and the current price that is currently establishing
your minimal profit expectation is of course another model that you can use but
typically, I will set my stop to trail with .10 of the current price after I have reach my
minimal profit expectation (But that's just me. This is a very individualistic thing. No one way is the
right way).
For example, If a stock is currently at 30.00/share and my target price projection for this
stock is $33.00 per share. My maximum profit expectation is $3.00/share. But, minimally
I am willing to accept $1.25/per share profit. Therefore, when the stock hits $31.25, I set
a trailing stop at $31.15 and hope that the current price will not trigger my stop until it reaches at
least $33.00/share. Now, if my stock is triggered right away, I will make at least .10c less than
the $1.25 profit I had hoped for. But, if the stock continues to rise, I have the potential of making
more than just $1.25 profit.
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Everyone,
This concept is really not that hard to grasp unless of course you are greedy in which case this trailing stop concept will be hard for you to accept because you just know that you can get more and you are not willing to settle for mediocrity.
I hope you guys finally see what I am trying to point out to you because I don't know how else
to explain to you that your desire for the best profit you can get out of any one trade is called GREED.
mp
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Registered User
Joined: 10/7/2004
Posts: 426
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mp, the problem with using trailing stops is that the market does not go straight up or down.
There is enough volatility that your .10 trail will probably be hit and then the stock will
then continue on its merry way to the $33.00 share price you wanted.
Trading with support levels is not Greed. It is a very logical method to capture the big gainers
that is needed to improve the equity curve. I don’t know what your win ratio is but if you have
a 50% win ratio and you limit your winners to 5% profit, I can almost guarantee you will never
make very much money in the market. I used to think that trailing stops were a good idea until
I backtested them. Just my opinion
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Registered User
Joined: 3/25/2005
Posts: 864
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Booker,
To each his own.
My win ratio is well above 50%.
For me there is always a new trading opportunity, daily.
So, I don't have to hang around one stock (or option for that stock) too long. Typically, I make my profits in the first hour and half of trading each day and then I'm out.
I used to be strictly a day trader but now I usually find a good 1 day swing trade.
I enter at the end of the day and typically I'm out early the next morning.
It's all about trading the right stock (or option for that stock) to begin with and the rest falls into place (usually).
mp
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Registered User
Joined: 10/7/2004
Posts: 426
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mp, I've prepaired a simple backtest to show you why I came to my conclusion.
I ran this on the Russell 1000 stocks. Notice the differences in profit.
You can't see it here but if you examine the buys and sells you would see that
a lot of profits were lost on the trailing stop. I conclude that trailing stops
does indeed put a damper on "let your profits run"
This first report shows the results of a buy on 10ma crossing up thru a 20ma and selling on 10ma crossing down thru 20ma
This second report is using the same criteria excempt adding a 8% trailing stop
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Registered User
Joined: 10/7/2004
Posts: 426
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mp, I am not trying to argue with you but just pointing out what I have found through backtesting. I am
glad that you are profitable and wonder if you could be even more profitable without the trailing stops.
Good luck in your trading.
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