Wednesday, November 30, 2016

John Paul Discusses Trailing Stops on E-mini S&P

Trailing stops - you may have heard the term before, but do you know what it actually means? More importantly, do you know how to use this technique as a safety net for each trade? A recent video published by John Paul explains how to use them in your trading:

As a trader, you've probably experienced a scenario where you're in a trade, hoping the profit target will be reached. It's going well - price is averaging .75 to about 1 point. Within the next two candles, you think that there's a good chance of profit. It's very tempting to lock in profit at 1 point. However, the rules of your trading method say to stay in the trade until the fourth candle. Two candles later, the trade is in the red and you wished that you had gotten out earlier. Then the stop loss is hit, resulting in a loss. A trailing stop is one way you may have been able to lock in some profit to turn that loss into a smaller loss or breakeven trade.

The premise is simple: place a trade with two contracts instead of one. At a specific point when you're in profit territory, exit one of the positions. That leaves you at profit with one horse still in the race. Hopefully the other trade is a winner. If not, at least you made something on the profit and hopefully it was enough to cancel out the losing trade. To make it easy, you can exit the position at half of the profit target. Also, if you trade four contracts, you can do so with two of the contracts. A contract multiplier of two is easy to work with.

Not every trading method is suited for trailing stops. You need to use something that will get you in early, before the move. For example, the Roadmap, Atlas Line, and X-5 strategies taught in the Mentorship Program are designed to find trades early. This way, you can let the trailing stop ride the trade up or down, hopefully locking in profit. If you get in too late, the early exit may only be worth a couple of ticks. Also, be weary of broker commissions. Commissions are usually charged on a per-contract, per-trade basis. Check with your broker so you know the fees and account requirements for trading with multiple contracts.

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