Trailing Stop Loss

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Permalink Reply by Adam Horak on October 27, 2010 at 11:53am

Karim;

that is a great question regarding Trailing Stops (TS)... I personally have used them in a number of different trading conditions and found they do not work... they are based up of arbitrary numbers! your stops and limits should always co-inside with areas of support and resistance (S&R). TS use a number that is based solely off your interpretation of where that particular currencies trading rage may be... (now you can set up your TS to allow for the Average true Range ATR on a particular time from ofter using the entry time to do this however it still does not take into account S&R) you could take the most resent area of S&R however you will find that by doing this with the price action of the currency market you will often get stopped out of the trade even though it never pushed below your area of support or reached your limit. Leaving profit on the table.

you will find that successful FOREX traders will base there stops and limits on support and resistance either liner of horizontal areas.

hope this clears things up a little bit for you.

regards Adam

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Permalink Reply by Caroline Carlin on October 27, 2010 at 1:08pm

Hello Karim,

As from my own experience, it is quite difficult to set trailing stops in such an optimal way that you don't lose too much profits when they are hit and at the same time allow you to keep on the trade for a longer time.

The distance from the price will highly depend on the currency pair, and its average fluctuation inside the particular time frame you're using as main. An automated and fixed amount of pips is not the best solution, in my opinion, as the wave of prices goes back and forth exponentially and key support and resistances should also be taken into account. I'd rather use an indicator as Parabolic SAR, for example, and trail the price according to its value on the second previous candle.

Less than 20 pips will take you out too soon unless you are scalping and monitoring the trade actively during a strong momentum move. If I am going to leave the trade unattended for a long period I usually set it to an automated 30-35 pips distance (on AUDUSD) which is a little above the pair's usual average fluctuation range on 30 minute charts. But as soon as I am back in front of the screen, I will try to follow up with the SAR or progressively set the stop at a safe place below/above a strong support or resistance.

As this approach is based on the time frame I chose to base my trade on, the procedure will be the same be it a short-termed move or a longer swing or position trade.

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Permalink Reply by PJ Shimkonis on November 15, 2010 at 10:46am

Karim,

I too find trailing stops do not work. The answer is to determine the take profit in advance and not give in to set and forget. A 10 pip change on a 50 pip profit over more than one day will set you back a lot more than if you set your profit and loss correctly. Believe me, I'm no expert, but trailing stops are difficult to determine.

Simple rule - if you don't mind losing 10 pips on a 20 pip trade, then set a 10 pip stop once your daily trades hit the 20 pip mark at the beginning.

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