Trailing Stops vs. Targets

[ramanos]

As a fairly new investor I have learned a lot in a very short time about TA and fundamental analysis. I have had very good success getting into trades in tight price pivot areas using a combination of Trend, pattern, candlestick formation and NASDAQ level 2. I tend to be good at analysing the probability while getting into trades. This is not to say that I consider myself succesful however as I have one crucial dilema. Knowing when to exit!!! I have seen other posts on here discussing how to keep profits after getting a trade right initially by setting a target to collect profits. I admit that if I followed this philosophy, in hindsight of course I would have moderate success compared to my approximately break even state at present. There is however the problem of never catching the big wave. Many of the trades I look at (again in hindsight), it seems that if I were to have set a trailing stop based off of the ATR, I would have reaped far more on some trades than if I had selected a logical target.
My question is multidimensional:
1) I am interested in what peoples opions are regarding Trailing stop vs. Targeted exits.
2) Are there situations where one would be preferable over the other?
3) Lastly, and obviously this could be completely dependent on commision structure, what are peoples thoughts on a combination of the two?

I am trying to get a sense as to what works for people and try to put it in perspective in my particular strategy. This, I believe is my greatest weakness that if I were to overcome would set me on a path to a decent income.

 

[segutor]

I prefer trailing stops set at 10% of max equity. But many times I am forced to use a target because of fiibo levels, s&r, etc.

 

[tomorton]

Stops at 10% of equity sounds exceptionally high risk. I am more comfortable with 1-2%. I set stops based on the TA, but limit orders at 1.5 times x risk. I often take profits early, but only when price has already travelled at least 4/5ths of the way to limit order level. I don't close losers early.

Having said all the above, I am happy to close all positions in a winning trade portfolio if overall market looks like stalling or reversing against me.

Trailing stops have usually only succeeded in getting me out at break-even and I don't see any situations now in which I would use them.

 

[AngryErik]

I'm relatively new to trading as well, but my exit strategy is a mixture of trailing stops, stop limits, and brackets.

About trailing stops, I've noticed that if the underlying is volatile and/or your trailing stop is too tight, you'll get filled early and miss out on profits. Of course, if you get filled "too early" and then the price continues to go down, you'll probably feel good for getting out when you did. Kind of a toss-up to me.

I use a trailing stop around 2% when I see a long upward trend and I plan on holding it for a length of time.. given that I'm at work and that I can be away from my desk, it's nice to have that peace of mind. I only ever put in a trailing stop though after I've gotten some profit to protect.

I use stop limits usually when I've bought something and it's a bit riskier. I use it for downside protection, until such time as I can cancel the stop limit and put a trailing stop on it after it's profitable.

I use bracket orders on short term trades. If it's rangebound, I place a buy and a sell at the limits of the range (OCO), and then if it fills I set two stops (OCO again)... one to close at a profit, and one to stop out of a loss - both very modest, but generally the stop loss is further out.

I hadn't really thought about mixing trailing stops with stop limits.. could easily set your stop limit to be a trailing stop, and potentially improve your exit.

Again though, I'm relatively new to trading and so my thoughts aren't worth much by themselves. Hopefully this is the information you were looking for.

 

[Pablo81]

Normally I dont go beyond 2-3% of equity and if I need a big stop for a certain strategy i then compensate with money management bringing the amount per point down

 

[avano]

3% max. 10% is way too much. Can be ruined easily.

 

[Pablo81]

Hi I am newbie to trading so not so much experience so my post above is what I do to start as this is what I have read and learnt from a lot of research so please dont thing I am an expert.

 

[resistance]

3% max. 10% is way too much. Can be ruined easily.

3% can also be way too much if you have a big equity. It just depends upon the capital you are trading. I will risk 10% on a $100 account but I will not exceed 2% on a $5000 account.

 

[Profitsniper007]

This internal conflict of should I have a set target or trailing stop was something annoyed me for a long time.

I think if you are day trading, a trailing stop is not often the best thing, though if you are trend trading, it is a lot more useful.

For day trades, if I am wanting to stay in, rather than using a set trailing stop, I manually trail.

Let's say I am buying something that I expect to trend up though out the day, let's take USDJPY and for ease of numbers say I bought it at 100.

A lot of other buy at 100 and price rapidly move up to 100.70, pulls back a little and attracts more buyers at 100.50 and makes a new high of 101.10.

Once there is a confirmed close of the new high on what ever chart I am trading (usually this would be 1h) I will move my stop up to under 100.50 - where the most recent low was established.

Since I am expecting it to trend, and since a trend is higher highs and higher lows, if price violates this low, I was wrong about my assumption it would trend.

If price then pulls back to 100.90 and rockets off again to close at a new high, I will move my stop to just under 100.90 and have 85 pips locked in.

I will continue to do this until price can make a new low, at which point I am taken out of the trade.

 

[Babyblush]

If the target is very much near, suppose i have set short term target then i wait for it. If its a long target then i set the trailing stop.