Trailing Stops Based On Lower Pane Data

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

Some traders use indicators as stop loss points. A popular one is the MacD. As prices trend towards profit, the position is held until the MacD line crosses to the other side of its average.

A similar idea is using the Stochastics indicator to signal an exit. In a range bound market environment, you exit a long position when the Stochastics rises above 80 and you exit a short position when it falls below 20. But in a strongly trending market environment, the Stochastic indicator gets “glued” above 80 in an uptrend and gets “glued” below 20 in a downtrend. The exit in those circumstances occur when the Stochastics indicator hooks in the opposite direction.

Another idea for trailing stops appears underneath the lower pane in a price chart, namely the time axis. If you notice that the last several rallies lasted 3 bars, then you might consider exiting or at least tightening the stop on that bar.

we'll chat again Monday ...

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