Last updated
Last updated
A Tailing Stop Loss is an essential tool for securing profit and limiting potential loss. Some general principles are listed below.
A Trailing Stop Loss follows favorable price movement by a fixed amount or percentage to protect profit.
A Trailing Stop Loss allows positions to remain open as long as price moves in a favorable direction.
A Trailing Stop Loss stays fixed to protect profit if price moves in an unfavorable direction.
A Trailing Stop Loss should be paired with a fixed to minimize potential loss.
Consider the following when setting trailing distance:
Volatility- trailing distance should be set so a Trailing Stop order is not triggered prematurely by normal volatility.
Technical Analysis- significant price levels such as support/resistance or Fibonacci ratios represent potential points of price reversal.
Risk-Reward - align profit targets with the desired risk-reward ratio.
Trading Strategy - tight Trailing Stops may suit short-term strategies, whereas wide stops may suit long-term trading.
Position Size - larger positions may require wider stop losses to handle market fluctuations.
Risk Tolerance - set stop losses to limit potential losses to match your risk tolerance.
Psychology - Trailing Stops help to maintain discipline and avoid emotional decisions.
A Trailing Stop Loss protects gains by following favorable price movement and triggering if price movement reverses.
Trailing Stop Loss levels are dynamic and follow favorable price movement. Profit is secured if price reverses sufficiently to trigger the stop order. This allows positions to remain open as long as price moves favorably.
The 'true range' is the greatest of the following:
Current high minus the current low.
The absolute value of the current high minus the previous close.
The absolute value of the current low minus the previous close.
Specifies the trailing distance of the stop order. The trailing Stop Loss will be triggered if price retraces from a candle high by the percentage set.
Considered the following when setting Trailing Stop Loss %:
Market Volatility: Wider stops for volatile markets, tighter stops for stable markets.
Risk Tolerance: Tighter stops for low risk tolerance, wider stops for high risk tolerance.
Trading Strategy: Short-term strategies may use tighter stops, and long-term strategies may use wider stops.
Position Size: Larger positions might require wider stops.
Profit Target: Stop distance should be proportionate to the profit target.
Increasing trailing distance may prove useful in volatile market conditions or when trading longer timeframes. However, a wide Trailing Stop Loss may protect less unrealized profit if the price moves unfavorably.
Activates the Trailing Stop Loss function.
A regular is fixed and will limit loss if price moves in an unfavorable direction from entry.
orders are set at static levels. Orders are triggered to secure profit if price reaches or exceeds these levels.
The Pro Tester includes Trailing Stop Loss and other are reflected in profitability data displayed in the However, Trailing Stop Losses are not represented in backtest data displayed in the Calculations Table. See the section for details.
Trailing Stop Loss settings are global and can powerfully affect strategy performance. may simplify the initial stages of . This is especially important when for optimization.
Specifies if will be set manually or automatically based on the Average True Range.
Manual - The system will initiate trailing and set trailing distance according to the values specified in the and settings.
Average True Range (ATR) - The system will automatically set trailing distance according to values specified in the and the settings. See the section for details.
Average True Range (ATR) measures market volatility by decomposing asset price range over the lookback period specified in the setting.
The Trailing Stop Loss level is calculated by multiplying the Average True Range (ATR) by the value specified in the setting, then subtracting this from the highest price since entry (for long positions) or adding it to the lowest price (for short positions).
Specifies the percentage price movement in the favorable direction that will trigger the Trailing Stop Loss to follow. This trigger initiates trailing. Trailing distance is specified in the setting.
This setting is only applicable if is set to 'manual'.
Specifies the lookback period over which price will be examined in order to calculate the Average True Range (ATR). ATR is a dynamic measure of market volatility based on the highest and lowest price within the specified period. Typically ATR length is set to 14 periods, however, this can be adjusted to suit market conditions or trading style. A longer period generally results in a higher ATR. This will increase trailing distance making the stop order less likely to be triggered by normal volatility. Increasing trailing distance may prove useful in volatile market conditions or when trading longer timeframes. See the section for further details.
This setting only applies if is set to Average True Range.
Specifies the multiplier used to calculate a based on the Average True Range. A higher multiplier increases trailing distance making the stop order less likely to be triggered by normal volatility.
See the section for details.
This setting only applies if is set to Average True Range.
may prove useful during .
Stop Losses are an essential risk management tool for limiting potential loss. A Trailing Stop Loss will follow favorable price movement to protect gains.