Starting Equity Stop vs Accrued Profits Stop

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

Here’s another version of the two trailing stops mentioned yesterday.

Decide to treat loss of starting capital differently than accrued profits. For example with a “fixed value trailing stop”, decide that you’re willing to lose 5 points of original capital but that you’re willing to risk 10 points of accrued profits. For example, you bought at 1350. Your first stop loss would be “sell at 1345 stop market”. 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. And when price reaches that point that is 10 points more favorable than your entry price, you change the stop price so that it is always 10 points below the most favorable price seen since starting the trade.

Similarly, for the example of a “fixed value trailing stop”, decide you’re willing to lose 10% of original capital but that you’re willing to risk 15% of accrued profits. Then in the above example, your initial stop after buying at 1350 is “sell at 1215 stop market”. Then, if and only if prices rise 15% above your entry point, you start trailing the best price seen by a stop that is 15% below the best price seen since starting the trade.

cont'd tomorrow ...

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