Trailing Stop FXTE

Last modified 13:21, 5 Nov 2012

Trailing Stop - FXTE

Trailing Stop levels are used by traders to determine when to enter or exit a trade.

Trailing Stops can be used to limit losses, or to maximize profits.

A trailing stop is incrementally changed to follow the direction of the current trading price. It is plotted from the start date, forward until the stop level intersects the price chart. The trailing stop levels will only change in one direction: Upward for Long trades, downward for Short trades.

The Trailing Stop - FXTE looks back over a user defined period of time to the lowest low (for Long trades) or highest high (Short trades) and then adds or subtracts a user defined distance.

tsfxteformula.png

The Long or Short Trailing Stop FXTE level is then plotted as an individual line for each day:

indictrailingstopfxteplot.gif

The stop level calculation is performed daily. If the calculated stop level is higher than the previous day's (for a Long market setting), the new level will be plotted on the chart below the current interval. If the stop level is lower than, or the same as, the previous day's level, the result will be discarded and the previous day's level will be continued horizontally to the right.

In the Short stops setting the process is reversed - i.e. stop levels must be less than the previous day's level in order to be plotted.

In this way, the stop levels can only progress either upward (in Long markets), or downward (in Short markets).

The point at which the trailing stop line intersects with the price chart is the exit or entry signal point.

Calculation Parameters

The following Trailing Stop calculation variables can be set on the Parameters tabbed page of the Trailing Stops Properties dialog box:

indictrailingstopfxteparams.png

Initial Position - Direction of Trade

Select between Long or Short, depending on what type of trade is contemplated.

The Trailing Stop level will always be plotted below the price chart for long stops, and above the price chart for short stops.

Entry Date

Select a date from which the Trailing Stop indicator will proceed.

Type in the date using the dd/mm/YYYY format or use the convenient drop down calendar selector tool.

Note - For Long trades, the Entry Date must be followed by a price rise on the subsequent day for any plot to be made. Likewise, for Short trades the Entry Date must be followed by a price decline. Remember, the intersection of a trailing stop line is an entry/exit signal. Once triggered, it will no longer be calculated.

Number of Bars to Reference

This is the number of intervals prior to the current day (day the level is calculated for) that are used to determine the lowest low (for long trades) or highest high (short trades).

If the price chart's current interval is Daily, a setting of 3 will result in the lows/highs for previous three days being compared.

The default for this is set to 3.

Exception

The only exception to the above rules is that “inside bars” are not included in the Number of Bars to Reference.

Inside bars are defined as having a lower high and a higher low compared to the previous bar. If the highs and/or lows of the “inside bar” are equal to the previous bar, it is still considered an inside bar.

Point Size

The point size should be set to the minimum number of points in which the security or instrument is normally traded.

Points Distance

The Points Distance is the amount that is subtracted from the lowest low in Long Trades (added to the highest high in Short trades) to calculate the final plot level.

The actual point distance plotted on the chart as the trailing stop level, will be a multiple of the Point Size. For example, for stocks whose minimum trading size is one cent, the Point Size will be set to 0.01, and the Points Distance setting of 25 will be the same as $0.25 cents being added or subtracted to/from the lowest low/highest high.

Plot Display

As mentioned previously, the Trailing Stop display will always be below the price chart for long stops, and above the price chart for short stops.

The exact display of the plot is controlled on the Plot tabbed page of the Trailing Stops Properties dialog box.

Style

The Style selected for the plot can be one of the following: Solid, Dashes, Dots, Points, Histogram or Step.

The default display Style is Step. This is a common display forl trailing stop indicators.

Once the style is selected the Color, Weighting and Visibility can also be controlled from this page.

Scale Settings/Appearance

The controls in these two tabbed pages are common to many indicators and do not affect the calculation of the FXTE Trailing Stop line.

For more information, go to the Common Indicator Properties topic.

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