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Monday
Oct012012

Trailing Stops, Roll your own!

Trailing stops, when you first hear about trailing stops and how they work, you think wow just what I need to maximize my profits!  but after using them for a while you begin to realize that they maybe just another plot to maximize your losses or at least maximize the amount of commissions you pay.  This is because you need to either set them wide in order to give them room to work or set them too narrow where they continually get stopped out without having had a chance to make a run. 
 
Hmmm........do the big boys see my stops and just go after them?
 
In this article we will explore building our own trailing stops instead of using the stock ones that are in the Strategy Builder.  By building our own we will be able to define our own parameters for the trailing stops and by keeping them inside of our own rules they will be hidden from view from the rest of the world.  I don't really think the big boys actually look for an individuals stops but I do think they know at what levels they can find stops and that they will gather them up at their convenience.  Then again there's no reason to have them sitting out there in the open for the world to see when we can just build them into a rule. 
 
In this first example we have a simple way of setting up a trailing stop rule.  We're finding the highest high over the last day and drawing a line half of a percent below that High.  Then when price drops below that line we get a signal.  As long as we continue to get new highs our stop continues to follow them up at a half percent below.
This rule functions pretty much just like the one in the ones set in the management area. You set your percentage in the Const () Node.  Here I am using 0.995 to get a line 0.5% below the Highest High.
 
So to use this as your exit go ahead and construct and save rule as shown above.  Then go into Step-2 in the Wizard lab and find your rule under the management section in the bottom left window and drag that rule into the bottom section under the Management: Closed Position area.  It should look like this.
 
There are a couple of gotchas using this rule.  One being that we are using the highest high of the previous day when we first enter this rule.  This is because we don't have any way of referencing our entrance point to use as a initial value.  


.....Any guesses to the second gotcha, put them in the comments below :)

 
I'm going to explore ways around both of these in the next section of this article.
 
And in following sections I will make Trailing Stop responsive to ATR and then how to dynamically change the trailing width in response to other conditions.  
 
If you are a paid subscriber you will be able to follow along with the rest of this article.
If you are not already a paying subscriber now is a great time to start, as we will be going back to our normal subscription rates soon, Soon after live trading is available again with Prodigio.
 

 Follow me on Twitter to find out when I publish the next section.

 

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