Trailing Stop Loss - A Good Safety Net or a 'Lazy' Option?

[Dave64]

Do any of you fine young people utilise the trailing stop loss feature in your automated systems or do you actually see an added trading opportunity when the market, usually unexpectedly, moves against your position?

[Big Bad Barney]

Why do you want to use a trailing stop loss? My thoughts are that it's use is for slow moving markets that might gradually deteriorate.

I.e. It depends on the sport and environment etc... e.g. In cricket... prices jump when a wicket occurs... how would a trailing stop loss serve you there? The queue is a problem, so you'll have slippage...i.e. it's not gonna fill at your stop loss, it'll go past it...

[Dave64]

I currently use a standard stop loss to exit when a move goes against my position by a certain margin and for a short-term solution that seems to work well atm. When the market moves in my direction I have several phased exit points and it seems that a trailing stop loss would be beneficial in those instances where only some of my exit trades are reached and matched before a reverse in the market?

This would be along the lines of what Peter has demonstrated in the video here:

https://www.youtube.com/watch?v=U-p1-jhZwPY

[ShaunWhite]

I currently use a standard stop loss to exit

The maths :
Just remember that all bets, open, close, stops, takes etc all settle seperately. Look at your bet history if in doubt and note it doesn't even have market totals, just bets. That means that the usual betting rules apply about long term success needing value. I'm not saying you should never stop if you can't do it at value, but if for instance your initial bets had a +2% edge and your closing bets had a - 3% return (net - 1%), then even though you'll have winning/losing markets and feel you're doing ok then over the weeks and months , the loses column will be greater than the profits column. It's unavoidable maths.

The safeguard :
Make sure your stop isn't a terrible bet, that can be taking prices in a market with a biggish spread or prices that are clearly miles from being realistic. Margins are tight, you can't afford to throw money away. A stop bet usually doesn't come for free, you're paying for the insurance.

Avoiding the problem :
Because you're personally showing a profit or loss of X ticks it doesn't alter the value on offer. Eg you might want to back at 2.0 to get out of a bad lay at 3.0, at the very moment the horse starts to fade making that back at 2.0 a bad decision. That's much easier to judge with eyes on the race, and why automation is often many many small bets that you don't need to manage, rather than fewer but larger bets as a manual trader might use. With auto you can cover every horse in every race worldwide 247 if you want, thats where the edge/scale will accumulate rather than via a handful of cherry picked situations in afternoon on most but not all days of the year.

That was all a bit repetitive but it's a really important thing to get your head around. Trading is just betting so avoid bad bets.

[Dave64]

Thank you for that reply and the advice within Shaun ... much appreciated

I'm focussing on the greyhound pre-race markets so my current basic stop loss settings are set at values that I'm pretty happy with atm. In the majority of cases I'm finding that if the market goes against me by a certain amount and in a certain fashion then it rarely moves back into into a profitable position so the easy and most cost-effective way of exiting my trade(s) is using the stop loss at a pre-defined value. Obviously in the future I'll be looking to manage this position more effectively, maybe by reversing my position, small range scalping, etc if the window of opportunity in the market exists.

Plenty of food for thought and thanks again - Dave