Trailing Stop Insight


Hi Guys, hi from Andrea Unger.
Trailing stop!
I know we have already discussed about it,
but this is the Automatic Trading Magazine
which is so far only in Italian but we are
thinking about the English version, and in
this I was reading the article of Andrea Nebiolo,
this guy here, and he was talking about the
correct employment of trailing stop in trading
systems.
I like these articles because they are all
analysis based on numbers, being an algo trader
I obviously base all my decisions on numbers,
and in this article Andrea, who has the same
name as me, the same business as me, the same
trading approach, so obviously I agree with
what he writes, the same experience, because
it is what makes us think what is good or
bad, he’s explaining the pros and cons of
trailing stop and all the dangers in the built-in
software rules of functions.
So who has seen the other video, where I talk
about the trailing stops knows that I’m not
a fan of trailing stops, but just to tell
you another thing in our video, I was saying
that I don’t trade systematically cryptocurrencies,
I just put live two systems on Bitcoin future.
I developed these systems a while ago, I kept
them in incubation, live incubation with no
real money, and I saw that they are performing
well so I decided to put them live, but looking
at the performance I noticed that these systems
were able to capture some of the major trends
that the market showed, you know there had
been interesting trends, but in their retracements
phases, or the opposite direction trends,
they were suffering deep drawdowns, giving
back a lot of money that they accumulated.
Psychologically I prefer not to make money
rather than giving it back.
So if, for example, I have a trade that goes
up to 100 and then goes down to 80 and I exit,
that 20 given back from the virtual open position
gain to the final gain, makes me suffer more
than if I had a take profit at 80 and after
exiting, seeing the market going up to 100.
I mean this is my personal mindset, but I
believe it’s common with most of you, let
me know it will be interesting to discuss.
That said in any case, let’s go back, this
system had these nasty slowdowns in the phases
where my trades were giving back some money.
So I was wondering about using a trailing
stop and I tested it, it’s more than two systems,
it’s one system with two different sets of
inputs, so it’s very similar.
In both, I inserted a trailing stop and I
found out with my moderate astonishment and
satisfaction, that employment of a trailing
stop in this system helped very much.
First of all in reducing, really cutting down
the drawdown and also, this is what gave me
more reasons to be astonished, in increasing
a little bit the net profit.
So I was not giving back part of the net profit,
getting a better drawdown, but I got a better
drawdown and I even saved my net profit which
was obviously a very nice surprise.
So thinking about this, I was thinking back
of when the first systematic trading approach
came out, in the ’80s maybe or so and the
fact that they were coming along with a trailing
stop concept idea, which was one of the exit
rules.
So if we think back at those markets in the
’80s and we compared them to a Bitcoin today,
they were similar, I mean obviously, the bubble
of Bitcoin was pretty much more explosive,
but the general behavior of these long trends,
long and strong trends and deep retracements
and then up again, it’s very similar and so
it was obvious that in those markets there
was the suggestion of a necessity to use a
trailing stop to protect the open profits
while today the same markets which were moving
that way in the past have a very choppier
behavior.
So it’s much more difficult to get the same
benefit of using a trailing stop because you’re
using it on narrower timeframes, narrower
time horizons, so everything changed and the
goodness of the trailing stop of those days
is mostly gone.
If we look at today’s standard markets, Dax
future, miniS&P, crude oil, hardly you find
a good way to use the trailing stop and you
find always that standard exits such as time
exit, stop loss and take profit, are still
those who make the system work and additional
trailing stop most often doesn’t give any
benefit, not even psychologically reducing
drawdowns, you don’t get what you are looking
for what you were getting in the past and
what you can get if you trade this modern,
fast and furious markets, such as Bitcoin
or cryptocurrencies.
I trade this system of Bitcoin because I can
trade the futures of Bitcoin so I developed
on the futures.
So this is it actually and that explained
why I’m not a fan of trailing store today,
because narrowing down the timeframe of employment
leads to much lower or to no benefit and also
it has the danger of having the mistakes in
the software the bugs in the software to properly
calculate the impact of a trailing stop, this
is something that I probably discussed a long
ago in my previous video about trailing stop,
you can find it here on the channel anyway,
and the reason why I use a trailing stop on
Bitcoin is because it helped in, let’s say,
getting my system, protecting profits in such
a volatile market.
So I’m still not a fan of trailing stop, but
I accept to use the trailing stop when I see
a benefit.
I’m not stubborn, I test numbers, put that
together, if I like the numbers I use what
I found, if I don’t like them or if I think
that there is something false, due to a bug,
I just put it away.
Test, always test.
That’s it I hope it helped and let me know
about your experience with trailing stop.
Now don’t come and show me this marvelous
system with a 45° degree equity line, because
I don’t believe it.
Tell me your real experience, with real money
and using or not using trailing stop and if
you put your money at work with systems, I
believe you have the same conclusion I had
that trailing stop is not the ultimate help
for systematic trading.
Ciao from Andrea Unger see you next time,
ciao!
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