Jan 242012

Yesterday, BenkoTrader asked about trailing stops.  I thought the topic deserved its own post.

Ironically, the very same morning that he asked about that, I got zinged twice by the Bund for trailing my stop too closely.

I try to trail them 1-2 ticks beyond the last pullback high/low.  On the first Bund trade it didn’t hit my hard stop but it did hit my mental stop and I bailed.  Which was the right thing to do.  But it still sucks.

On the second, I try to get to no risk ASAP.  Since no risk was 1 tick beyond the last pullback high, it was a logical spot.. for a lot of other people.  The Bund poked up, hit the stops, and kept on truckin’ with me sittin’ on the sidelines.  I watched in horror as it went on to hit my original target.  That incident had a psychological impact that lasted the rest of the day.

What I find is that ES often respects levels to the tick.  Bund and other markets with more volatility do not.  So from now on I’ll trail my Bund stop 3 ticks beyond and see if that doesn’t work better.

I will also say that last week I was stopped by a tick or two in ES trades several times.  So far I think that’s my fault for not keeping them beyond key levels.  So I’m paying attention to that as well.  But overall I think tight stops on ES has saved me more than it has cost.

Yesterday I took a short that would have worked had Euro news not come out which caused it to spike up.  In this case I was glad to have a tight stop as I only lost 6 ticks.

Personally I have found the past 6 days very frustrating and I’m not making money.  So I’m slowing down a bit, being more selective, and hoping things will pick up soon.




  One Response to “Trailling Stops – Close But Not Too Close”

  1. Good points,
    and I agree that the vola and liquidity of the instruments determine how much room a SL needs. E.g. when I have traded the Bund, it was more liquid than it is now, but even then I recognized more often slippage with my SLs – it just jumped 2 or 3 ticks above a price point.
    On the other hand one has to determine the price (and volume) activity which falsifies the trade hypo. E.g. I have been short the FESX arond 1 am after it made it throuhg the 13-08 area with a main target at 96. It tested above last swing high 10 which was 1 tick short of IBL and 2 resp. 3 ticks short of LoDs 12 and 13. Where should be my SL be for the last lot? It could be at 11 – 1 tick above last swing high. If 96/95 might be a magnet it may not test above it, but I could also choose 14 or 15. In my case I waited for a test of IBL 11 and saw price 1-ticked it and then went back to 09, but then it 1-ticked again IBL. I saw that the 1-ticking of IBL has not generated a push of resp. selling and therefore I stopped finally out at 11 – for good or bad. I think whatever you do you should be consistent with it.

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