Fixed Value & Percentage Value Stops

This is the second in a series of articles this week that began with the October 30, 2006 article entitled “Protecting Profits With Trailing Stops”.

Here are some examples of the two versions of trailing stops mentioned yesterday.

A trailing stop that sets a fixed value. Let’s say you bought at 1350. You decide you can only tolerate a loss of 5 points. Therefore, you enter an order that says “sell at 1345 stop market” (5 points under the entry price). Then as prices move favorably, you move the stop price so that it is always 5 points below the most favorable price seen since starting the trade, but if price moves unfavorably you don’t move the stop until price moves favorably again. Some traders call this a Chandelier Stop.

A trailing stop that sets a fixed percentage. Let’s say you bought at 1350. You decide you can only tolerate a loss of 10%. Therefore, you enter an order that says “sell at 1215 stop market” (10% below the entry price). Then as price moves favorably, you move the stop price so that it is always 10% below the most favorable price seen since starting the trade, but if price moves unfavorably you don’t move the stop until price moves favorably again.

continued tomorrow ...

Copyright 2006 Raymond T. Lee. All rights reserved.
Leisurely e-Mini Futures Trading
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