How I Trail My Stops

by Michael on October 9, 2006

The other day Downtown Trader asked me how I handled trailing my stop on that DGX short. I pretty much followed exactly what’s in my post about how I take partial profits. I moved the stop to breakeven once my gain was equal to my initial risk of 50 cents per share. As it dropped further I moved the stop to lock in one-third of my profit. Why one-third? It’s a value I came up with which I think allows a stock to have a normal retracement without stopping me out. It’s sort of an arbitrary level, although I got the idea from the Fibonacci levels. I’ve found that method to work reasonably well after much trial and error with trailing stops. I read somewhere that you can consider a retracement to be normal as long as it didn’t break the 62% Fib level. So I figured that I could trail my stops somewhere around that level to allow stocks to have their normal fluctuations. I generally get more aggressive with the trailing stops as the day wears on. I’ll move them to 50% by 3:00 and just keep pushing them until the close — assuming I don’t bail before then like I did with DGX.

Tagged as: Exits, Retracements, Trailing_Stops

{ 6 comments }

Teresa Lo October 9, 2006 at 10:06 pm: Hi Michael!

Are there any instances where you would press a winning position?

T.
mrmike October 10, 2006 at 1:24 am: Michael,

Do you ever use pivots for your trailing stops?
Michael October 10, 2006 at 7:51 am: Teresa,

I assume by pressing you mean just letting it run without taking partial profits or even adjusting the trailing stop? If so, I’ve been trying to do that more of late. My initial plan with DGX, since it started off so well, was to just hold the entire position until the close or until it hit $50. Unfortunately the market action caused me to abandon that plan.

Mr. Mike,

No, I’ve never used pivots for anything.
mrmike October 10, 2006 at 11:48 am: Thanks Michael.
Paul October 10, 2006 at 11:12 pm: Hello Mike,

You mentioned that once you reach 1R that you move your stop to even. Do you still do this if you have only been in a trade for 15 minutes you reach 1R, or do you wait an hour and then adjust any type of stop.

One concept I have used is if I hit 2R within an hour then I set a moving trailing stop of 1.5R. If its over an hour I use a moving trailing stop of 1R. As of now I dont adjust my stops for an hour unless I hit 2R. Once I hit an hour and I hit 1r then I go to break even. Still experimenting.
Michael October 10, 2006 at 11:51 pm: Paul,

I still try to wait at least an hour before touching the intiial stop. Maybe if I get a real quick 2 or 3R I’ll move it to break-even before 60 minutes are up but I won’t for just 1R