Profit Strategy: Trailing Stop or Price Objective?

[mrsoul]

Hello,

I find knowing where to take a profit the hardest part of trading.

Entries are pretty clear.

Stops are fixed.

I don't know if it is better to use a price objective or a trailing stop to handle profits.

The only thing I don't like about a fixed price objective is if the price falls short of the objective and then retreats; if that happens what is the best strategy?

Maybe have a price objective for half the position and a trailing stop on the other half?

I wonder if you just used a price objective if your long term results would be better.

Has anyone observed, with there own trading, which method of profit taking is better?

 

[amnonco]

I think it depends on your strategy mostly.
personally I can't accept using price targets. it's absurd. no one knows where the market will go (if it will reach your target or if it will surpass it).

so a trailing stop of some kind is the answer.
of course, the wider the trailing stop, the more profit you will give back to the market on a retraction, the tighter the stop, the more gains you'll keep but you'll be stopped more often and won't ride the price trends.

that's a question you ask:
a. yourself - what's more convenient to you, psychology-wise.
b. your favorite backtesting software. optimize that point a bit, or search for the MAE and you'll get your answer.


Good Luck
Amnon

 

[mrsoul]

I think it depends on your strategy mostly.
personally I can't accept using price targets. it's absurd. no one knows where the market will go (if it will reach your target or if it will surpass it).

so a trailing stop of some kind is the answer.
of course, the wider the trailing stop, the more profit you will give back to the market on a retraction, the tighter the stop, the more gains you'll keep but you'll be stopped more often and won't ride the price trends.

that's a question you ask:
a. yourself - what's more convenient to you, psychology-wise.
b. your favorite backtesting software. optimize that point a bit, or search for the MAE and you'll get your answer.


Good Luck
Amnon

Well said Amnon.

However I disagree that "price targets are absurd".

Many tmes I look for a spot to get out BEFORE I put the trade on.

Often enough, I hit my target.

If I just used a trailing stop, I would have been taken out way before my profit target, so using price objectives deinitely makes sense.

The original question was, is a profit objective better in THE LONG RUN than a trailing stop?

It very well might be. You need to observe which method is more profitable.

I can understand that you are more comfortable using a trailing stop- it just suits your personality better- I kind of like it too; however, because it's more comfortable, it doesn't mean that it is more profitable.

To answer this question, you need to observe which method works best when you trade.

 

[Plaste]

In my experience you can use a trailing stop for long term trend following successfully. For shorter periods performance is improved by combining a trailing stop with targets (either a price, a time stop or both).

 

[amnonco]

Well said Amnon.

However I disagree that "price targets are absurd".

Many tmes I look for a spot to get out BEFORE I put the trade on.

Often enough, I hit my target.

If I just used a trailing stop, I would have been taken out way before my profit target, so using price objectives deinitely makes sense.


The original question was, is a profit objective better in THE LONG RUN than a trailing stop?

It very well might be. You need to observe which method is more profitable.

I can understand that you are more comfortable using a trailing stop- it just suits your personality better- I kind of like it too; however, because it's more comfortable, it doesn't mean that it is more profitable.

To answer this question, you need to observe which method works best when you trade.

what I meant was, that under the premise that you cannot predict future price, choosing a target before, is plain arbitrary.
why not a tick above or below your chosen target? what if the price never reaches the target? you get out on your stop? what if the price hits the target, and then continues on significantly in your direction?

I'm a long term trend follower, so price targets seems like trying to predict the market.

but - if you want to, as I mentioned, you can back test it and get your answer...

In my experience you can use a trailing stop for long term trend following successfully. For shorter periods performance is improved by combining a trailing stop with targets (either a price, a time stop or both).

oddly enough, a time stop/target makes more sense than a price target. optimizing on a time parameter, might be a good idea.

 

[Charlton]

There is a third way

There is a third way - not trailing stop and not price objective.

A price objective is purely arbitrary, although I accept that you might base it on previous price action i.e. ATR

A trailing stop suffers from the problems already discussed on this thread, whether it be a tight stop or a wide stop.

The third way is to base the profit strategy on what the market is doing second by second.

If you entered the market based on, for example, the instrument being oversold then look to take profit when it shows the signs of being overbought or looks like it will turn before reaching that state.

If you entered the market based on, for example, the identification of the start of a trend then take profit when you get signals that the trend on the timescale you entered is starting to fail.

If you entered the market based on, for example, Volume spread analysis then take profit when the VSA indicates that the reasons for entry no longer run true.

This may be successfully combined, if you are of a nervous disposition or need some holiday money in your bank, with taking some profit by closing 50% or 75% of your position, again based upon the "third way analysis". The remainder can be allowed to run with a stop-loss at break-even plus costs, giving you a totally risk-free trade with a potential profit at a later time, again based upon the "third way analysis". This will help develop the mindset of letting profits run.

Charlton

 

[mrsoul]

There is a third way - not trailing stop and not price objective.

A price objective is purely arbitrary, although I accept that you might base it on previous price action i.e. ATR

A trailing stop suffers from the problems already discussed on this thread, whether it be a tight stop or a wide stop.

The third way is to base the profit strategy on what the market is doing second by second.

If you entered the market based on, for example, the instrument being oversold then look to take profit when it shows the signs of being overbought or looks like it will turn before reaching that state.

If you entered the market based on, for example, the identification of the start of a trend then take profit when you get signals that the trend on the timescale you entered is starting to fail.

If you entered the market based on, for example, Volume spread analysis then take profit when the VSA indicates that the reasons for entry no longer run true.

This may be successfully combined, if you are of a nervous disposition or need some holiday money in your bank, with taking some profit by closing 50% or 75% of your position, again based upon the "third way analysis". The remainder can be allowed to run with a stop-loss at break-even plus costs, giving you a totally risk-free trade with a potential profit at a later time, again based upon the "third way analysis". This will help develop the mindset of letting profits run.

Charlton

Good point though I don't agree that price objectives are "purely arbitrary".

 

[TheBramble]

Good point though I don't agree that price objectives are "purely arbitrary".

LOL. Is that so?

So why are you asking?

If your price objectives were being hit more often than not, you wouldn't have posed the question.

If your price objectives aren't being hit either they are arbitary or you need to do some homework. Or accept there really isn't any target to hit.

The price and your TF will tell you when to get out.

It stuns me that bods claim perfect entries (whatever that may mean) and then struggle to justify or be satisfied with their exits.

If you're wringing your hands over your exist then you don't have a trading method.

 

[mrsoul]

LOL. Is that so?

So why are you asking?

If your price objectives were being hit more often than not, you wouldn't have posed the question.

If your price objectives aren't being hit either they are arbitary or you need to do some homework. Or accept there really isn't any target to hit.

The price and your TF will tell you when to get out.

It stuns me that bods claim perfect entries (whatever that may mean) and then struggle to justify or be satisfied with their exits.

If you're wringing your hands over your exist then you don't have a trading method.

Actually, the question was: is it more profitable, in the long run, to use a trailing stop or to use a price objective.
I never said my price objectives don't get hit.
Sorry to lose you.

 

[TheBramble]

Lose me? Pal, you were never in touch.

The fact you're asking that question tells me you're not getting hit at your PO. You wonder if TS is the way to go. LOL.

Your method is incomplete.

If you're not incorporating EVERYTHING you know into your stops and targets, then you'll be asking these sorts of questions. Even if you think you're not incorporating EVERYTHING you know into your stops and targets - you'll be asking these sorts of questions.

When you KNOW you've incorporated EVERYTHING you know into your stops and targets - then you wont need to ask these sorts of questions anymore.

Hope this answers your question.

 

[mrsoul]

Lose me? Pal, you were never in touch.

The fact you're asking that question tells me you're not getting hit at your PO. You wonder if TS is the way to go. LOL.

Your method is incomplete.

If you're not incorporating EVERYTHING you know into your stops and targets, then you'll be asking these sorts of questions. Even if you think you're not incorporating EVERYTHING you know into your stops and targets - you'll be asking these sorts of questions.

When you KNOW you've incorporated EVERYTHING you know into your stops and targets - then you wont need to ask these sorts of questions anymore.

Hope this answers your question.

You keep missing the question, either intentionally or unintentionally, that was asked in the opening post, which was: is it better, in the long run, to use a trailing stop or to use a price objective.
This was the purpose of the thread- not, as you keep stating, whether or not my price objectives get hit.
I have NO problem with price objectives getting hit.
No need to make this difficult Bramble; if you can add something to the opening post feel free.

 

[TheBramble]

OK. I've said my piece. I've answered your question.

The fact you haven't realised I've answered it is probably the reason you’re asking it – and still asking it.

 

[amnonco]

You keep missing the question, either intentionally or unintentionally, that was asked in the opening post, which was: is it better, in the long run, to use a trailing stop or to use a price objective.
This was the purpose of the thread- not, as you keep stating, whether or not my price objectives get hit.
I have NO problem with price objectives getting hit.
No need to make this difficult Bramble; if you can add something to the opening post feel free.

I think what he was trying to say was, if you don't know the answer, then there's something missing with your strategy.

what's better? the method that's working for you. if it's not broken don't fix it.