Trailing Stops – In this article I want to explain how I use Trailing Stops to manage my trades and more importantly my profits.
There are different stages in which I bring in the trailing stops during my trades. The first point at which I deploy my first trailing stop is when the price closes above 50% to my initial price target zone. Let me explain more – My main “With Trend” trading strategy trades the 5th Wave of a Bullish or Bearish Elliott Wave Trend movement, which has a high probability of completing. With this type of trade and using my software I can calculate a target price zone for the trade with a high degree of accuracy. So the distance from my entry point to my target price has, again, a high probability of being reasonably accurate. The chart below shows my current and open trade with Netflix on a Daily chart and as you can see I have placed the trailing Stop above the entry point as the price closed above 50% to the target zone. This is now what I like to term a “Risk Free Trade” and highlights one of my initial uses of trailing stops
Once I have a “Risk Free” trade, my next decisions within my trade management strategy involve adjusting those trailing stops to protect profits whilst still allowing the trade to do it’s thing. To give you an idea I am going to use two different examples to show the effectiveness of using trailing stops to protect profits with two very different outcomes.
The first example is concerning a recent trade on Netflix on a Weekly Chart before the trade you have seen above and then how it ties into this recent trade above. The full trade diary for the whole trade start to finish can be read HERE as I will only concentrate on the trailing stops for this article.
- In mid June 2014 this Netflix trade on a weekly chart was going great guns and the price had closed above the 50% to target zone, so as with all my trades I placed the first trailing stop just above the entry price to make this a “Risk Free Trade”. The Chart below shows this:
2. At the end of June the price makes a new Wave 5 high for this Elliott wave movement and closes near its weekly high. At this point I decide to reasonably conservative with my adjustment of my trailing stop and move it to 420.19 which locked in 1.2% profit on my trading account balance, whilst still being below the lows of the last 3 bars (weeks). At this time it was a sensible placement which still gave the trade room to do its thing. The Chart below shows this:
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