Why can't we use "trailing stop" and let the stock go as up as it can... It will hit the stop sometime, sh why should we sell before, using target price?
We can, just to make sure, place the trailing gap closed as stock goes up, if we really want to be re-assured...

So why do we need the "Partial" or the target cost, to sell the stock?

[David Waring]

Hi Teddy,

Glad to hear from you.

I think most traders will have a target price in mind for where they think the market is going to head so they can evaluate the risk/reward of a potential trade, and therefore decide if the trade meets their money management position. For instance many traders will only take a trade if they feel there is the potential to make 2 or 3 times the amount they are risking on the trade, and the only way to know that is to know where you are going to place your initial stop and where you think the market is heading.

This does not necessarily mean that a trader needs to get out of the whole trade at this point, it simply is the area where the trader looks to start taking profits, either through taking some or all of the trade off the table, or through the use of a trailing stop as you have pointed out. The main thing here is that the trader will normally want to make sure that they don't give back large amounts of profit once the trade hits their target price.

Hope that helps. If there are any other questions or comments on this one please feel free to post them below.

Best Regards,
Dave

[Simit Patel]

hi teddy,

i don't really set profit targets, as i am a trend trader and prefer to let the trend run. i do, however, have clearly defined exit strategies so that i keep my losses at manageable levels.

[David Waring]

Hey Simon,

Glad to hear from you.

I am pretty sure that you agree with this but just wanted to make sure in case there is something I am missing about the way that you trade.

If I am understanding correctly, while you would not have an exact profit target defined, your strategy is designed so that you enter trades where the trend you are trying to ride is expected to break and run a good ways, which would put the potential profit you expected from the trade at a much higher level than the loss that you are willing to take on the trade.

Secondly, if I am understanding correctly, by trading this way you are able to make money even if you are right on less than 50% of your trades, as when you have a profitable trade it is normally a large profit relative to the loss that you take when you have a loosing trade.

Am I correct here?

Best Regards,
Dave

[Simit Patel]

hi david,

yes, i would think that is an accurate description. i only jump in when i think a big trend is developing, and i will get out asap if the trend does not develop. this lets me be wrong more than i am right and still be profitable.

[Airelon]

I don't trade Forex, but other markets (stocks and futures, futures options). I know in Forex, trend trading is almost a must.

But here's something to think about, that I've been able to use successfully when it comes to taking profits in the markets I trade.

Risk 3% of your account on a trade. When your account is large enough, you start buying many more contracts / shares / lots. Basically, your account is allowing you larger sizes - although you keep to the 3%

Place your profit target at twice your risk. Take 90% to 95% of your profits off the top immediately. Let the remaining 10% to 5% ride with a trailing stop. This way, no matter what happens - you've made money. If the remaining 10% of your position accumulates more. All the better. If you get stopped out? No biggie, it was only a small portion of your position.

[P-P]

Hey

My opinion is that you should try ur best to keep ur losses at a minmimal (usually a % to ur account) and let ur profits run as much as it can.

i personaly dont use profit targets simply because the price might have a chance of keep running towards ur favor so yeh i will agree with you that i have a preference over trailing stop over profit targets.

However, on the flip side you must evaluate and calculate how much of ur profits u are willing to give back in order to make more...

if that last paragraph is abit confusing, i strongly recommend u should read the book Trade Your Way to Financial Freedom by Van K tharp. It covers different style of exits used by professional traders and develop an exit system that will fit u

hope that helps.

Peter

[Shaun Overton]

I find that although trailing stops and trending strategies can produce great results, the returns tend to be extremely sporadic.

Trailing stops only work well if the market trends hard and remains that way for an extended period of time.

The interim, which is the vast majority of the time, results in consistent losses. Trades that might have been profitable usually result in breakeven trades. Losses are compounded by the fact that substantial winners are so infrequent.

I find this emotionally difficult. I need an occasional winner because the market can go for years without forming a meaninful trend. Using limits for trend trades improves my confidence. The overall result might be less, but I feel confident enough to continue trading and the risk adjusted return is usually better.

Some successful traders I work with take the best of both approaches. They layer multiple lots in a single trade. The first 1/3 might have a risk-reward of 2:1, the second 1/3 is 3:1 and the last portion is a runner that uses a trailing stop. This combination preserves a lot of the smoothness from fixed take profits while allowing for the occasional home run.

[David Waring]

Hey Airelon,

Glad to hear from you.

Some good points made here from a money management standpoint. This is actually an area that I am trying to focus on more in my own trading as for me at least this is one of the most difficult aspects of a strategy to nail down.

So with this in mind I can definitely see where you are coming from with the range and taking part of the position off. Currently I look to build into positions as they move in my favor (trading trend not ranges) as I feel that trading your full size position from the beginning and then taking off part of the trade at your target when trading the trend doesn't work that well. My reasoning here is because unlike when trading the range, trend trades are much lower probability, you generally reach your profit target a much lower percentage of the time. So basically if you have your full sized position on at the beginning, then you always have your largest size on when you are stopped out (assuming you don't reach your profit objective).

So with this in mind I was wondering if you know, or know of any resources, which talk about building into trades with the trend that we could add to the site or point people to for the community's benefit and mine as well.

For anyone else who is reading if you have not already seen it Airelon has a great money management section in his Free Video Intro To Trading Course.

Best Regards,
Dave

[Teddy]

Dave,

Thank you very much for the answer and for the opportunity to place questions and get a few views from different people. As for the answers, I am not sure I fully understood them, but this is because I am new and I will be sure to visit it again and again until I'll understand all the answers and their meaning.

Also, I am using the video courses you place on the web and enjoy it very much.

Thanks, Teddy.