Using Trailing Stops In Your Trading System

As traders, we are all familiar with the feeling of excitement when the trade goes our way.

The satisfaction of knowing we used the necessary discipline as required by our trading system and followed through adhering to the rules as outlined by that system.

We watch in anticipation as the set-up materializes and reveals the entry point we expected.

Order entry was executed without a hitch and now we are watching as all our hard work has paid off…so far.

The next step however, and the most difficult for new traders is locking in profits.

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This area of the trading process is where many deviate from their rules based trading system and let emotion take over the trade.

Many times profit is erased and a loss is incurred because the futures trader fails to follow his system and obey his stop loss.

Maximizing profits is the goal and the only way to ensure we lock in profits already made is by utilizing and enforcing the trailing stop.

Are Your Stops In Place?

The trailing stop is dynamic in that you as the trader will continuously adjust the stop as your position continues to move up with the market if in a long position.

The opposite would be true if the trader were holding a short position and the direction is down.

By continually moving the trailing stop as our position moves, we lock in profits already made, effectively a guarantee that a loss will not be a result of the trade.

The trailing stop is a one-sided calculation in that it is calculated to move in only one direction, trailing our position as the trade moves in the direction we anticipated from the beginning.

The trailing stop is only adjusted as our position makes new highs if we are long the market or adjusted downward if we are short the market.

The trailing stop is never adjusted opposite of the initial move. The trailing stop is designed to protect profits already made, only.

Many times, new traders begin a trade with the market going in the direction they expect and are quickly in the money.

Reversals Happen - Often Unexpectedly!

But as is often the case, the market reverses and turns against the trader. Either out of emotion or the absolute need to be right, the new trader either fails to obey his trailing stop or never considers using one in the first place.

Profits made earlier rapidly evaporate and turn into a loss which could have been avoided had the trader obeyed the rules of his trading system and entered a trailing stop order.

Of course, a initial stop loss order should be implemented when the trade is executed in the beginning.

The initial stop loss is there to protect you from a large loss should the trade go south below your entry point.

The trailing stop is there to protect profits as the trade unfolds and continues to move in the direction you anticipated when the order was executed.

Index futures can be fast paced, volatile and is highly liquid and it is the equivalent of trading suicide to actively use any method without employing both initial stop losses and trailing stops in your trading system.

Trailing stops can be used and are used effectively in both day trading and scalping no matter which of these emini trading methods are chosen to trade the index futures market.

6 comments:

I am new to the world of E mini. Thanks for the information.

Interesting information.

Keith
thedailyeminitrader.com

Interesting information....

Keith
thedailyeminitrader.com

True that discipline is needed. We must not et carried away if our trade goes our way. Because not all the time we can get a successful trade. And we could lose all our profit as fast as we got them. Very nice article.

It was a very nice idea! Just wanna say thank you for the information you have shared. Just continue writing this kind of post. I will be your loyal reader. Thanks again. and welcome to my Blog:


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How far away do you recommend the trailing stop be set? I have read 6 ticks, and 8 ticks. Any recommendation?

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