If you have any questions, feel free to email Ken Wolff or Shawn Wolff

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MTrader Class (C) copyright MTrader 2006

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Trailing Stops by Racerick...    

[09:41] <racerick> Everyone ready?
[09:41] <Gimmie>  I am
[09:42] <billy> I'm ready!
[09:42] <racerick> I do class, you can an eye on our Q short Gim
[09:42] <racerick> We've had lots of discussion lately about the use of stops.
[09:42] <racerick> I've periodically used stops, both absolute and trailing over the years
[09:43] <Gimmie>  ok
[09:43] <Gimmie>  lol
[09:43] <racerick> But because I 've always been pretty active with managing my investments and the majority are intermediates, having either has never been a priority concern.
[09:43] <ceebee> I'm all ears, rick
[09:43] <racerick> When they needed selling, have generally sold.
[09:44] <racerick> Plus with a wide variety of investments, have usually always maintained fairly balanced ports, with rarely more than 5-10% of a given port in any one stock.
[09:44] <racerick> So even if a given stock or option had a bad day, generally minimal impact on the overall port. This is not to say there have not been times when I wished I had used.
[09:44] <racerick> Daytrading a whole different ball game.
[09:45] <racerick> I consider myself an excellent stock picker and a pretty good trader, Every single major loss I've had has been because of failure to not keep a mental stop or just inattention to a particular trade.
[09:45] <racerick> As I was telling Cat the other day, because of the spreads in options, you can take a 20 contract position and because of a ¼ point spread sometimes, you're down $500 the second you execute the trade, so it's taken some mental adjustment that in daytrading you do that a few times a day can put a hurt on your port.
[09:46] <racerick> Especially if you do a fair amount of trades.
[09:46] <racerick> So it didn't take me long to realize that I needed to utilize stops a lot more than I was use to.
[09:46] <racerick> You can read all the trading articles, etc. that say you can just use mental stops or that the specialist will hit your stops, blah, blah, blah.
[09:47] <racerick> That's probably fine if you have absolutely perfect mental discipline and absolutely nothing else to do except stare at your screen all day and you're only watching a couple of stocks
[09:47] <racerick> Unfortunately, as much as I like trading, I have other things that I have to take care of, so even though I'm usually in front on my computers, often times I can't devote full attention to my positions and often I literally have too many positions to monitor each one closely.
[09:48] <racerick> So, about the first of June I started experimenting with using trailing stops, how much to trail, initial amount, adjusting and determining how much I needed on various type stocks
[09:48] <racerick> Now I don't have anything against absolute stops, they are definitely better than none, and I use occasionally.
[09:49] <racerick> But the problem I've found that often because I trade some of the more volatile stocks  the stock could make the move you wanted and come back and hit your stop, especially if you're scalping against the tide, in 15 min. or less.
[09:50] <racerick> Just the other day, OIH went up .40 and came back down more than a dollar from where it started , all within less than 20 minutes that I was in a meeting.
[09:50] <racerick> So anyway, played with, most of the summer, just experimenting with different facets. [09:50] <racerick> Early August, some of you remember I was out of town for the week at a swim meet. That was also the big test of my system.
[09:51] <racerick> Generally I would put in my orders early AM with the appropriate trailing stop or late in the day for the following day.
[09:51] <racerick> It was one of the most profitable trading weeks I 've had here.
[09:52] <racerick> Sure I left a few profits on the table when the stocks went back and hit the trail, but when I started analyzing it,
[09:52] <racerick> POINT 1: I realized that on most of the trades, that if I had been sitting there watching, I probably would have bailed on more than ½ the trades at an even earlier point during the day and in actuality would have made even less.
[09:52] <racerick> I think this is a major point of consideration based on some of the discussions in here about having the confidence to let a trade run.
[09:53] <racerick> POINT 2: Helps prevent over-trading. You're not constantly in and out of the same stock. One of my problems.
[09:53] <racerick> Anyway, after I got back told Cat I was going to use TS on most my trades and more systematically track and then post the results.
[09:54] <racerick> Well, I didn't use on every trade (and I would have saved myself a bunch of money a few of those times) and I had a couple of days when I was gone and didn't trade but here are the results from the past couple of weeks
[09:54] <racerick> 158 trades 21 trailing stops hit.
[09:54] <racerick> The most important figure is that of those 21 ONLY 6 of those were stops that I didn't want or need.
[09:55] <racerick> That's less than 4%.
[09:55] <racerick> A couple of those probably due to my placing a little too close, the other few kind of suspicious.
[09:55] <racerick> One in particular with BIDU, SNDK and S
[09:55] <racerick> However, once you know which stocks to be careful with, you can work around either by share size or giving a little more room
[09:56] <racerick> The other problem I was trying to address, was that many here are trading in a very defensive mode to preserve their ports. I can relate to that.
[09:56] <racerick> So my other goal was to set maximun risk for any one trade of $100.
[09:57] <racerick> Now I want everyone here too think about this for a minute.
[09:57] <racerick> What does this enable you to do?
[09:57] <racerick>  If you can afford Ken's fee, then I believe most of you can risk a $100 on a trade.
[09:58] <racerick> And as I'll show you in a sec, not really even this much in many cases.
[09:58] <racerick> But that was the other parameter for the test.
[09:58] <racerick> But with a $100 max risk, here's what you can do. Pretty amazing when you think about it.
[09:58] <racerick> 1500 Q's with a .06 stop; 300 OIH with a .30 stop; 500 AAPL with a .20 stop; 200 GOOG with a .50 stop; 700 BRCM with a .15 stop. Etc.
[09:59] <racerick> People, you can make a nice living trading anyone of those positions with maximum risk of only $100.
[10:00] <racerick> I mean you hit the Q's for three trades a day and only make a dime each time on 1500 shares, that's about $400/day after commissions.
[10:00] <ceebee> wow! great perspective, racer
[10:00] <racerick> Something for those in port protection mode to think about
[10:01] <racerick> Now obviously you need to trade well, using the same guidelines we use everyday because you don't want to lose $100 every trade.
[10:01] <racerick> But I have enough confidence in my trading and with the systems we use in here,  that I know I'm going to have more winners than   losers, even on a bad day.
[10:01] <racerick> So, realistically how do we set up the trade and trailing stop. Let's walk through an actual trade.
[10:02] <racerick> Now most the time I tend to take a little more conservative entry than say Sobek, so I rarely catch the absolute top or bottom.
[10:02] <racerick> Most of the time I wait till I see at least a little movement in the direction that I'm targeting. So let's use the q's.
[10:03] <racerick> Ok, Gimmie says Q's coming up on R1, YHOD or whatever, but we're ready. Q's hit the point and start stalling and turn back down.
[10:03] <racerick> We take our position. We immediately put in our stop, either a hard stop at a new HOD or we can use a .06 or .07 trailing stop.
[10:04] <racerick> Now if we're only looking for a .10 scalp, may just use hard stop
[10:04] <racerick> Now remember, we probably didn't catch the exact top, so the stock has probably already moved a couple of cents in our favor, so a .06 (allows for Kens .05 reversal) stop means we're probably at about the same point as if we had put in a hard stop a couple of cents above the prior hod.
[10:05] <racerick> So what happens now. Let's say our target was .25 back down to the CP.
[10:05] <racerick> Now remember, that once the trade is .06 in the money, you're home free.
[10:05] <racerick> Not a question of if you're going to make money, just a question of how much.
[10:06] <racerick> SO DON'T WORRY about it.
[10:06] <racerick> Worry about the mechanics of the trade and the options and actions you need to make to maximize your potential.
[10:07] <racerick> One thing you can do is take a break, walk around, get coffee, etc. because now you know that you're going to maximize this trade to within .06 of it's maximum potential.
[10:07] <racerick> Well almost, because there are a few caveats
[10:07] <racerick> We're approaching our initial target by this time. But the mkt is looking like crap, may go down 100 points today. Q's may drop .75 today.
[10:08] <racerick> So what do we do now?
[10:08] <racerick> 1 As stock reaches our target, we change trailing stop to a market order and sell
[10:09] <racerick> 2. We sell ½ our position
[10:09] <racerick> 3. We do nothing and say that we're willing to risk .06 of our profit in order to make a bigger profit and just let trade ride.
[10:10] <racerick> 4. I would sell half. Third or whatever and let the rest ride except that once it gave you a little bounce at the CP and started heading back in the direction you wanted, increase your TS amount slightly.
[10:10] <racerick> The reason for this is that the BIGGER the overall move you hope to achieve, the MORE room you have to give a stock.
[10:10] <racerick> I would advise most not to do this until you're in a profit position.
[10:11] <racerick> For example, the other day Ceebee and I were trading the Q's and we had both gotten in at  .08. So it was getting close to .20-25 and I posted that I was changing my stop from ,05 to .08.
[10:11] <racerick> She thought I was moving my stop to flat, but I was liking the way the market was moving and we were coming up on a resistance point and I was simply giving the trade just a little more room, so even with increasing my trail amount
[10:12] <racerick> if I had gotten stopped would still have made money.
[10:12] <racerick> The same with AAPL. Initially I may only give it .15, but once it gets going, have to give a little more room, IF your objective is a bigger move and not a predetermined fixed goal
[10:13] <racerick> If I'm only looking for 50cents, then probably wouldn't change.
[10:13] <racerick> If I'm looking for a $3 move, then may have to give it .75 room. But I wouldn't give it this much room initially unless it was an   intermediate to start with.
[10:13] <racerick> Just remember your candlesticks on your various charts.
[10:13] <racerick> If you're  playing a day long move off the 15min chart, those candlesticks have a pretty big range in them
[10:14] <racerick> So why use trailing stops?
[10:15] <racerick> 1) PEACE of MIND. - Trading can be stressful, Everything you can do to make less so will be helpful in your career.
[10:15] <racerick> 2) HELPS DISCIPLINE - Forces you to go ahead and place stop. Not likely to go change a stop to blow the trade. Heck, I don't think even I've ever done that.
[10:16] <racerick> 3) GIVES YOU THE OPPORTUNITY to MAXIMIZE POTENTIAL and not get out too early because you get nervous
[10:16] <racerick> 4) GIVES YOU MORE FREEDOM - don't have to stay glued to your screen
[10:17] <racerick> Oh and by the way, Worst trailing stop I took was $129. Average was $81 including commish
[10:17] <racerick> And that's all, any questions?
[10:18] <bruceg> Nice class, racer.  Well done.
[10:18] <KenWolff>  good class racer.. thank you
[10:18] <KenWolff>  but whats a stop?
[10:18] <bobss> thanks race
[10:18] <racerick> I think of everything, realizing just how much and many shares you can trade is the most important
[10:19] <Gimmie>  I think this is a very important class
[10:19] <Gimmie>  should be read many times over
[10:19] <Gimmie>  and I cant thank you enough race
[10:19] <Gimmie>  we appreciate it
[10:20] <racerick> ur welcome, what are we doing with our q's gim?
[10:20] <Gimmie>  well.. target was hit... R1
[10:21] <Gimmie>  and the 15 in chart is up... so it seems prudent to me.. to take the profits
[10:21] <racerick> y
[10:22] <Gimmie>  I really liked your class
[10:22] <Gimmie>  we could trail a stop !
[10:23] <KenWolff>  whats a trail?
[10:24] <sobek> the first word in "Trail Mix"
[10:24] <Gimmie>  our target was hit... so...
[10:24] <Gimmie>  what do we do now?
[10:24] <Gimmie>  1 As stock reaches our target, we change trailing stop to a market order and sell
[10:24] <Gimmie>  2. We sell ½ our position
[10:25] <Gimmie>  3. We do nothing and say that we're willing to risk part of our profit in order to make a bigger profit and just let trade ride.
[10:26] <Gimmie>  so which would you pick in this circumstance ?
[10:29] <Gimmie>  if the trade was with the tide... I would be willing to let some ride.. risk profits to make more.. trail a stop or sell half...
[10:30] <Gimmie>  but if we had strong momentum against the trade... and the 15 min chart was against the trade... I would be more apt to take the profits at target [10:30] <Gimmie>  make sense ?
[10:41] <Gimmie>  Ill take that as a yes
[10:41] <Gimmie>  thank you again for class rick !