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.
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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.