subject: How To Trail A Stop Webinar Part 2 [print this page] How to Trail a Stop Webinar How to Trail a Stop Webinar
Transcript Part 2 of 5
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Okay. So thats a huge con and that leads to the next bullet point that distractions are more a parallelist because the distractions are going to come, you know, its Murphys Law, right when that big trade is about ready to fire in and youre not able to manage the trade properly because of the phone ringing or who knows what other distractions that youre inundated with and we all are as we, you know, live our lives from day to day and try to trade.
So trade psychology also presents a new set of challenges that must be reconciled and that, of course, we talked about that a little while ago but you really have to figure out how to, again, lean on the system and remove yourself from the trade. And thats true with all trading but it could be more difficult with the trailing stop, especially when you started second guessing and you see how the last several trades you could have taken that fixed target and weigh positive done through the day. But because youre trailing, youre still having to trade or you are still not, you know, your results just arent as good. So you got to work that in somehow and find a solution to this trade psychology issues.
So, you know one thing you have to realize is youre going to make most of your money on a few trades. You got to stay focus and you cant let yourself become discouraged. So I prefer the Hannah Montana method and thats the baseball team that can hit singles and homeruns, the best of both worlds. I think that you can really come up with a powerful trade strategy if you combine both fixed targets and trailing stops. And it all starts with your back test, of course. You could load the bases and then hit a grand slam youre going to do pretty good, right? Thats why the cleanup hitters always batting fourth. So you have your base hit specialists coming up first and second and then you got your big hitters coming up third and fourth, thats usually how you would field a baseball team. You can kind of use that metaphor when it comes to trading.
If you go into a trade with two positions, for example, you could have your money management level, your fixed target and then you manage your two positions accordingly and you try to keep that one position on with as minimal risks as possible to hang in there and try to catch a big move. So you want to work your way into it, you want to start examining your charts and back testing and use a spreadsheets that we provide, whereas you would put in two lines of trades as two separate trades. They would both go in at the same time and at the same price, but they come out at a different exit point and so then you can start tracking both your trailing stop position and your fixed stop, your fixed target position.
So you get a trade plan developed that gives you the high percentage fixed targets with a chance for the big profit profits. So I think if I can just pause for a moment, I want to pull up a spreadsheet and show you some spreadsheet examples on how I do that. Just take me a moment here. This is a test I did. Im actually going to be making this trade plan available shortly. Lets see, Im not sure if you guys can see that. It looks like my let me see.
Mark Soberman: Yeah. Troy, you have to on the arrow broadcast the is it Excel?
Troy Noonan: Yeah, I am Im figuring it out here. Give me one second. Let me shrink it down too. Hows that?
Mark Soberman: Yeah, they should be able to see it now.
Troy Noonan: Okay. All right, so this is a spreadsheet that I like to use when Im doing back testing and I also track my real trades on this. And so, I was looking for a method with the HVMM 2010 with the Russell. And from what I know of the Russell, you want to be able to take advantage of the big moves when it finally does break out. It really makes a huge difference. And so, if you look at line 15 here, youll notice that Ive got a actually, look over here where my mouse is. Mark, you could see my mouse okay moving around?
Mark Soberman: Yeah.
Troy Noonan: Good. Ive got two trades coming in both at 9;49 so Im typing these trades in and Im putting two both with the same entry time and the same price. But the exit actually on this one is the same because this one stopped out. But if I go down a little further, youll find theres a trade here, 19 and 20, where they come out at different exits and you could see how one of them only yield at 7 ticks, whereas the trailing stop was able to get a little bit more. And I will go ahead and back test my charts with this in mind and so I come up with a trade plan that manages my position. So when I hit a certain level, Im tightening my stop and my idea is to get to a breakeven position as quickly as possible.
Okay. And that Im going to explain in this trade plan that I put out in the next few days. Look, were already trading this in my trade room but I just wanted to kind of show you an example here on February 4th. Heres a good example. We had two winning trades so both of these hit full target. On trade number one, the full target was got to 18 ticks and the trailing stop got you a little more, whereas on the second trade, we got full target. The trailing stop didnt do quite as well. It only got to six ticks.
So, you know, the results are completely different but when you combine the two, thats when really great things start to happen because we ended up today six and half points up, and we ended up the week up 17.9. But if you were to look at just the fixed target versus just the trailing stop, you would have a completely different result and its just something you kind of have to get used to. So when youre trying to decide if you want to trail or not, you start here. You start with a spreadsheet, clicking through your charts, posting your trades, and building up a series of data so that you can really examine whether or not the trailing stop is helping you or hurting you.
Now, I did a similar exercise with the British pound and after I got through about 50 or so trades, it just wasnt happening. So I removed the trailing stop and I went back and put all the trades in with just the fixed target. And all of the sudden, I had this great strategy and the trade system has been working fantastic. So it was a case where the trailing stop actually wasnt working. Okay. So its really important to flush it out.
Okay. So now that Ive showed you that let me just get back to my slideshow here. Okay. Im not sure now what happened. Could you see the slideshow?
Mark Soberman: Yeah.
Troy Noonan: You guys see it?
Mark Soberman: Not yet, Troy.
Troy Noonan: Sorry about that. Okay. All right, well, some for some reason, I cant get back to my presentation here. Forgive me guys. All right, there it is.
Mark Soberman: Okay.
Troy Noonan: All right. So what does your market and chart call for? Thats the first question you want to ask when youre thinking of a trailing stop. I was looking at a crude oil 610 tick chart on a particular trade strategy and I noticed that some of the bars were quite large and they were really some nice moves that were spiky, a big long move. And so, there were my traditional trailing stop method would have actually given back way too much profit and one of the things I noticed was at the end of that spike move that tended to be the end of the move in general and that it was going to start moving in the opposite direction. And so, my tried and true three bar stop method just wasnt working and so I had to come up with a creative solution how am I going to take advantage of some of those spike moves because those were like gifts and I didnt want to give the profit back.
And Ill show you what I did in a little while. Theres a the tried and true three bar stop is what Im going to spend most of my time showing you. And then I say consider its close cousin, the two bar stop and thats kind of an interesting method and Ill show you a little bit about that. And then, of course, the using your MOM to trail and, of course, were talking about the momentum indicator, the NetPicks Momentum Indicator. That one is also an excellent method to use but its only excellent under certain conditions and there are times when it just wont work very well at all. And then, of course, you have to still respect your key levels and the point I want to make, Is it okay to accept gifts? Know where your market out button is. So if you havent figured out a way to trail a stop and you do get a big spike move or your trail is just too far below and you dont want to give back your profit, theres nothing wrong with just hitting the market out button, nothing wrong with taking a profit.
And then finally, execution. This is probably the most important part of trailing a stop and that is being able to actually execute it to physically manage the trade when its happening live and that does take practice. And you should definitely practice it in a sim account for a while until you master your moves.
Okay. So Im going to shift over to my chart now and hopefully this wont take me quite as long. Okay. By now, you should be able to see my monitor.
Mark Soberman: Yeah, its coming up fine, Troy. We see your --
Troy Noonan: Okay.
Mark Soberman: -- charts on the Russell E-Mini 144 tick.
Troy Noonan: Perfect. Okay. So this is actually a trade that I called live on March 19th and this made it on to the spreadsheet that I just showed you actually. Its one of the trades that I tracked and this is using the HVMM 2010, the new method. And you can see right here, that there was a trade at the little plus sign and you could see the fixed target. Im going to put a green line where the fixed target is and our money management level is right there. So we went into this trade with two positions and Im just going to click through the chart and kind of show you and then Im going to talk you through the three bar stop which is what we used.
And so, when this trade actually triggered in, you can see it went straight down the target on just a few bars rapid successions. Its a really nice trade and one would have been out at that fixed target but, of course, we had a second position and we incorporated whats called the three bar stop. So let me show you what the three bar stop is. The three bar stop, what youre looking for in a short trade like this, is a bar that makes a lower high than the prior bar. So, for example, on this blue arrow here, you can see that that one bar there has a lower high than the previous bar.
So once that bar closes, you count that as bar number one. The next one to the left is bar number two and the next one is bar number three. Were going to put a stop one tick above the highest point of those three bars. Okay. So in this case --
Mark Soberman: Hey, Troy. Can I Troy, let me shoot this real quick. Can you
Troy Noonan: Sure.
Mark Soberman: -- hit like the up arrow on your TradeStation just to kind of zoom in a little bit --
Troy Noonan: Yeah.
Mark Soberman: -- to make it look a little bigger.
Troy Noonan: Sorry about that.
Mark Soberman: Thats okay. Its easier for everybody to see it.
Troy Noonan: Hows that?
Mark Soberman: Its better.
Troy Noonan: Okay. So the c, bar number two, bar number three. Ill put the a little red arrow. There, thats bar number three. And so the high of that bar is 678.4. And so normally, we would go one tick above but on that last list of bullet points I just showed you, key levels was one of those bullet points. We want to respect key levels. And on the Russell, you want to respect fives and zeroes so I would put my stop up at 0.6 and I just do it automatically. So heres the case where were two ticks above. And so, then were just waiting for the trade to continue.
Now notice this next little bar, this doji. That bar makes a lower high than the one bar prior so that resets my three bar count. And now Im counting that one as one, the next one is two, the next one is three. In this case, the second bar back made the higher high, the highest high of the three and that was a 678.1 so Im moving my stop down. So you could see the stop is now trailing. If we already got stopped out here, we would still not have as good of a result as our fixed target so we really need this to keep going in order to make this trailing stop beneficial, at least, on this trade. So we just let the market continue to do it. It does and youll see a new lower high. And when we count back 1, 2, 3, whenever I get two bars that have the same high, like in this case, I count those together as one.
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