Trailing Stops: Use Them For Very Short-term Spread Bets Or Even On Longer Term Ones?

Do you use trailing stops? If so, do you use them for very short term spread bets

only or also on longer term ones? For myself I use trailing stops on almost all my IG Index bets day trades or quarterly contracts. But then a lot of my bets are opened and closed in parts at different prices. I sometimes have the same stop on all parts and sometimes mixed stops. If I mix near-quarter, and far-quarter bets on the same stock, I will often have differing stops.

Trailing Stop Orders Can Preserve your Market Gains

I mostly use trailing stop orders on indices and commodities. They let you stay in a trade whilst locking in profits as you go. I prefer it to setting a limit as you can often capture bigger moves, but I guess everyone will have a preference. Note that you cannot have a guaranteed trailing stop so I don't use them that much for equities. I wonder how well trailing stops worked when the Dow had its 1000 point plunge within a matter of minutes that crazy day...

How to Use a Trailing Stop Loss

The step size is how much the price must move for the stop to be updated, in other words it defines the granularity of the stop. There are minimum distance/step sizes for different instruments - I believe daily FTSE is minimum step=5, minimum distance = 4

So, for example with a spread bet short position, if you had Distance=10, Step=5 and the price moved the right way you would get stops at:

350

345

340

335

....etc

If you has Distance=10 Step=10 you would get

350

340

330

....etc

The price must move (Distance + Step) away from your initial stop for the stop to move.

Similarly if you had Distance 1 with a Step of 1 would give you a stop at 342, not 350 - it would be moved straight away. So 342, 341, 340.....

So if you had the next stop at 350 but wanted to move in 1 pence increments you would use Distance 10 with a Step of 1. The stop here will never be moved closer than 10 points, but will be moved in increments of 1

Trading Example: Using a Trailing Stop on BAE Stock

Question: Suppose you short BAE stock at 340 with an initial stop of 350, and suppose you wanted to move it in 1 p increments. It says 1 percent. so does that mean you put 1 for step and it moves in approximately 3.5 (approximately 1 percent) so 350, 346.5, 343 etc.... then what do you do for distance 10 as want 350?

Answer: The units of the step/distance are points, not percent. The minimum values are defined as percentages though - so I guess your BAE the best you could do is a step of 4.

example distance 10, step 4

350

346

342

...etc

A Word of Warning

It appears that more spread betting providers are offering this service. This kind of hints that trailing orders are not a smart idea for traders, particularly for swing traders. Potentially highly profitable positions can be closed all too soon if the stop is not wide enough.

Got to some work now - hope it makes sense!

by: luckystrike

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