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al_sellatmarket

Optimal trailing stop percentage

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Hi al, welcome to the forums! A good way to look at a trailing stop is the ATR (average true range) of the last 10 bars. This will give you a good idea of the current market volatility for whatever market you're currently trading, and you can adjust your stop accordingly.

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Hi al, welcome to the forums! A good way to look at a trailing stop is the ATR (average true range) of the last 10 bars. This will give you a good idea of the current market volatility for whatever market you're currently trading, and you can adjust your stop accordingly.

 

So, the idea is to tie stops to stock volatility, right? I personally believe this is very logical approach.

 

Well, but the volatility of a stock changes with time and here comes the necessity to track the stop and adjust it accordingly. This is rather time costing occupation.

 

How do those, who are not involved in all kinds of programming handle this problem? Any ideas?

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You can use stops based on technical analysis. If price moves in your favor and breaks a resistance level, move your stop below it, etc... Identify S&R levels, fib retracements, trendlines, channels, etc... and move your stop accordingly. I personally use target points and do not trail. Or I will move stops as price breaches a pivot.

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al : first welcome to TL ¡¡ you will have a diversity of ideas and diferent aproaches on this topic, any off them are finally valid, it depends on how your trading style is to choose wich one makes you feel more confortable, let me add my concept to this : PRICE ACTION and this price action is pivots to pivots (higher highs, higher lows, lower lows, lower highs etc..) when you are "trailing" the market, you are following the markets action, nothing better (from my stand point of view) than price action.... each of this pivots are key places to add or reduce your positions.... whatever your trading aproach maybe... thats a basic concept here, if interested we can get deep into it, now RRR its where I find the true edge to this trailing aproach, especially because I get the chance of having very tight stops vs large gains... cheers Walter.

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How often are you making trades? Are you primarily intra-day trading? Or are you swing trading over days/weeks?

 

Not intraday - such a trading style requires LOTS of time and, frankly speaking, I'm not a professional fulltime trader. I would call it amatorish mid-term investing. My positions remains open 30-40 days in average.

 

Since I diversify my capital and keep about 15-20 stocks wide portfolio, I'm condemned to make rare trades...

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You can use stops based on technical analysis. If price moves in your favor and breaks a resistance level, move your stop below it, etc... Identify S&R levels, fib retracements, trendlines, channels, etc... and move your stop accordingly. I personally use target points and do not trail. Or I will move stops as price breaches a pivot.

 

Well, for me personally using different kinds of indicators is not a problem since my primary profession is software design and I'm able to automate almost every thought I have about trading strategies.

 

But I have friends, who buy stocks guided by some fundamental analysis (news, quarterly reports, gossip, hype) and then sit infront of their portfolio every day watching market ups and downs and having no clear exit strategy to follow.

 

They have no programming skills and even don't bother if technical analysis exists. So, a couple of weeks ago the guys lost lots of money while the markets sell-off. DELL, MSFT (one of the favorite stocks traded by computer geeks) drew down sugnificantly and caused losses.

 

So, my question was about a comprehensive solution for such kind of "traders" to preserve their capital from devastation. They open positions almost intuitively, but when it comes to selling, emotions come into play and they sit and wait for their stocks to go up again, but the stocks do not go in the right direction ... common picture.

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In that case al, we are not talking of closing "trailing" positions only, but when and why to open a position... that gets to a more complex topic, Why should I actually buy a stock... ? if they bought because of fundamental reasons, mostly you get trapped on lies... Technical analisis is the best way to take positions without being fooled... cheers Walter.

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Hi, guys

 

It seems to be always a problem for a trader to choose the proper trailing stop percent, doesn't it?

 

How do you decide?

 

Not sure what trading platform you're using to automate your trading, but in Tradestation, there is a minimum floor amount gained before the trailing percent kicks in. This is only way I do this with automation, bag in a required amount then leave the trailing percent wider than usual. That way, even if you get stopped out, you already have a certain gain bagged in already.

 

The thing about stops we set never coincides with the dynamics of the markets. The only way to adjust this is do analysis on the market measure the pivots or ranges, use that to adjust your trailing stops accordingly. Even then, it's no guarantee the stops will not get hit.

 

I've used stop loss at specific dollar amount and use trailing stop when it's already in the money. Of course, this is static but like all system traders recommend you have to optimize your systems from time to time to the changing market conditions.

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Hi Al,

 

The only way to preserve ones capital from devastation is to not risk the capital at all. There are lots of speculative reasons why your friends seem to intuitively buy stocks guided by some fundamental analysis.

 

The primary reason they buy is that they have a pre-conceived idea that the fundamentals provided by the company or outsiders is adequate enough information for the market place to see that the value of the stock is not sufficient and that it should be priced higher. However, because of supply and demand in the market place, usually when the price of a stock starts to decline, its a good indication of there being more supply available for sale than there is demand.

 

Probably one of the more conservative ways for your friends to preserve their capital is to use a diversified portfolio approach that minimizes the overall risk of total lose. Another approach might be to consider buying the S&P500 index spiders (SPY). This has shown great returns over a substantially long period of time for constant returns.

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Not necessarily,

 

Any and every trading style warrants the risk and money management of the trades. With that be said, for those individuals who may not scalp, day-trade, or aggressively swing trade, they still have to have all the same trading components (i.e., signals, entries, stops, targets).

 

A lot of traders who have not had enough exposure to the markets, will initially start with some of the components and after several painful lessons, realize the other ones are needed also.

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My question was about buying SPY as you mention, would like to know now that you mention it, and considering you have a much greater knowledge on selecting a product to trade than we average traders...what edge SPY has to offer, thanks Irushing... cheers Walter.

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Ok, my misunderstanding.

 

The SPY is a ETF fund (referred to as a tracking stock by some). It is a great trading vehicle that mirrors the S&P500 and trades like a stock. This allows great diversification and if you look at the last 3+ years has increased from 80+ to now 140+.

 

There have been some nice pullback, but it has trended upwards nicely and is retesting the 1999 and 2000 highs (the internet boom)! So for a buy and hold strategy, that would have been a great return on your investment.

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