Swapping entry day stops to trailing after entry

MarkS · Post by **MarkS** » Wed Apr 20, 2011 4:43 pm

I am curious how people handle the changing of stops if one's system uses a particular stop on entry day, and then switches to a trailing or reversal exit on all following days (I believe the Donchian system provided with TB uses this type of logic).

Currently I just leave the original stop in while I wait the 3-4 hours for CSI data to be available for that day's price action. Then in evening once I have updated all data, I generate orders on TB and move all initial stops while I adjust other orders as necessary. Risk I run is getting stopped out early if market moves adversely after hours, as the trailing stops are usually much further away than the initial trade-day stops.

Wondering if others kill stops at market close and go "naked" for the few hours before new order generation, or if you do something similar to what I do.

sluggo · Post by **sluggo** » Wed Apr 20, 2011 5:27 pm

Trade completely naked, without any stops whatsoever (example: Bollinger Breakout presupplied system)
Go naked, without stops, for part of the 24 hour day (example: stops enabled only during traditional "day session" hours, no stops at night)
When in doubt, do half: for the 3-4 hours between the Close and OrderGenCompleted, go naked on half the positionsize and on the other half, keep the stop at the day session stop price.
When in doubt, do half a different way: for the 3-4 hours between the Close and OrderGenCompleted, move the stop to (Close - (X*ATR)) on half the positionsize and on the other half, keep the stop at the day session stop price. Maybe half an ATR or whatever you're comfortable with.
Use a weighted average of ideas 3 and 4 above. (a) No stop on X% of the position; (b) Day session stop price on Y% of the position; (c) (Close - (X*ATR)) on Z% of the position.

In my real-life, real-money trading, I use some but not all of the techniques on this list.

MarkS · Post by **MarkS** » Thu Apr 21, 2011 11:43 am

Thanks Sluggo.

I've always like the "half" approach, and it didn't even occur to me, so will look at both #3 and #4. Appreciated!

LeviF · Post by **LeviF** » Thu Apr 21, 2011 12:19 pm

What is the purpose of the different entry day stops? Cant you just use the trailing stops?

leslie · Post by **leslie** » Sun Apr 24, 2011 4:14 pm

Perhaps to generalize the question "switching from stop to trailing exits", it be worth observing that trading with intra-day stop loss orders generates a false sense of security. Your back tests will be rather optimistic. Why?

In the real word, almost any market can be thin from time to time. Should your stop be close, action light, Market Makers will run your stops. This cannot be accounted for in a back test.

More accurate back testing would take exits Market On Open after your exit price was hit. Yes, your back test will look worse--closer to reality.

LM