# Trailing Stop-Loss

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Taking initial profit doesn’t mathematically make sense.

Trailing behind price.

Impossible to do an actual calculation to tell us whether or not a trailing stop would produce more profit, but we can get a good idea.

Let’s go back to the ten trades hitting profit targets.

Here is the criteria we are going to base this experiment on.

Every trade hits an initial target of 30 pips.

The stop is moved up to lock in 15 pips of that profit.

In one example we will say that after the stop is moved to 15 pips it will remain there until it is either hit or the secondary target of 100 pips is hit.

In another example we will say that we then drag the stop from 15 pips up as price moves and there is no secondary target.

Let’s say that we hit that secondary target 50% of the time and we get stopped out for 15 pips 50% of the time. If that were the case, we would net 575 pips in those 10 profitable trades (5×100 + 5×15=575).

Now, let’s say that we were dragging a stop behind.

Once again, we cannot really get a sound mathematical statistic behind this because every trade will react differently; however, we can assume a few things. 1st, we can assume that the 5 trades that hit the secondary target most likely would not have been hit by a trailing stop unless there was a relatively large pullback on their way to 100 pips. I would say that at least 80% of trades going from the 30pip profit point to 100pips wouldn’t hit the trailing stop.

But let’s say that only 2 out of the 5 didn’t hit the trailer in a retracement.

Well, we would assume that the other three would have at least gained us 50 pips and maybe 75 for 1 or 2 of them.

Then we have to factor in what we think the 5 that hit the 15 pips hard stop would have done had they been trailed.

It is likely that 1 or 2 of those 5 happened to turn right around after the 30 pips and wouldn’t have got much more than a 15 pip gain had they been trailed.

It also very likely that at least one of those 5 would have got near that secondary target and fell all the way back down to hit the 15 pip stop, so we have to factor in at least one relatively larger gain than the 15 pip stop.

So let’s throw some random numbers out there to just see where we might be.

1.15 1. 40
2.25 2. 60
3.40 3. 60
4.55 4. 110
5.75 5. 130
= 610

Why a trailing stop is beneficial.

Any of those trades could run for 300 pips

You don’t ever just lock part of your profit

You don’t lose a lot of money when a trade turns unexpectedly

Thanks for watching!
Nathan

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• Anonymous

Skip, everything you said is very true. It is difficult to judge what timeframe to trail and how far back the initial trailer should be, but I am working on something using a parabolic SAR that I have found is very good.

• Anonymous

They would only move as price increases, if they were to go down with price as well, you would never actually be stopped out..

• Anonymous

Hi Chuck, I have been using a parabolic SAR to determine where my trailing stop is located. I will most likely be doing a video soon to show you how that works.

• Anonymous

Hi Dary, I am not sure what my preference is at this point. The way I have been trailing my stops lately is by manually moving them up using the parabolic SAR as a reference.

• Anonymous

Wow, that’s awesome, Richard! That is the beauty of a trailing stop.

• Richard Anderson

I just did a buy on the \$/chf with a 55 pip trail stop..got 322 pips..Richard

• Dary

I would like to know if you think dynamic stops or the normal trailing stop is better? I have used the dynamic but never he standard so I don’t know.  But if the pair does not do a lot of spiking the dynamic works well.

• Chuck Gilbert

How far back do you put your trailng stop?  Chuck