Increase Your Profits By Tracking Trading Results

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    The Best Binary Broker 2020!
    Perfect For Beginners!
    Free Trading Education!
    Free Demo Account!
    Get Your Sign-up Bonus Now!

  • Binomo
    Binomo

    Good Broker For Experienced Traders!

Trailing Stops – Can they Increase Your Profits?

Trailing stop losses can give you a way to limit losses and to lock in profits on your trades. A trailing stop works so that as a trade moves into profit, the stop level adjusts to lock in the profit and limit the loss potential.

In this way the downside is limited by the stop level but the upside is potentially unlimited. Put another way, trailing stops are a way to allow your profitable trades to run and losses to be limited.

In this article I describe how trailing stops work. I also test evidence that trailing stops lower risk and result in higher profits. This is done by running back tests on two basic strategies both with and without trailing stops.

Trailing Stops – How they Work

There are several variations of the trailing stop used by forex traders. Some of these are offered as standard on trading platforms, others need to be custom-coded with software.

The most common trailing stop systems are described here.

Standard trailing stop

With the standard trailing stop the trader sets an activation profit threshold. Once the threshold is reached the trailing stop “kicks in”. The system places a stop loss just below (or above for a short) the current market price.

Unlike a regular stop loss the trailing stop will move as the price reaches new highs and the profit on the trade increases. With a buy-side position the trailing stop will only move upwards – increasing the profit.

The reverse is true for a sell-side position. The trailing stop will stay fixed if the price moves against the trade. The exit happens once the stop level is hit.

The diagram above illustrates a standard trailing stop system.

Trail distance

With this type of trailing stop the trader will need to set a trail distance. The trail is the “distance” between the current market price and trailing stop exit point. So for example with a trail of 10 pips the trailing stop will float 10-pips below the market’s highest price since “kick-in”.

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    The Best Binary Broker 2020!
    Perfect For Beginners!
    Free Trading Education!
    Free Demo Account!
    Get Your Sign-up Bonus Now!

  • Binomo
    Binomo

    Good Broker For Experienced Traders!

With some trading systems the trail point is allowed to move either dynamically or in fixed increments (step sizes either in time or price).

With a dynamic trailing stop the placement of the stop can move on every price tick. Whereas with an incremental trailing stop the level is only changed once the price changes by more than the step size.

Dynamic trailing stops have a high overhead on your trading software and on your broker who has to processes the rapid order throughput.

With an incremental trailing stop the level is only changed once the price changes by more than the pre-set step size. With a time-based increment the level is changed only once per interval.

Trailing stop with cap

With a standard trailing stop the take profit level is usually left unset or at least set very wide so that the profits can run. This way the trade will usually exit when the stop loss is hit rather than when the take profit is hit.

For this reason some traders prefer to use a variation on this known as the capped trailing stop. With the “capped stop” the take profit level is also set dynamically.

The cap is placed a small distance above (below for sell orders) the market price. The cap is held fixed for a certain period of time or price interval. If the cap or stop isn’t reached in that time interval the trade remains open.

Clearly both the cap and stop can’t be adjusted on every tick otherwise neither would ever be reached.

The benefit of this approach is that it can result in higher profits.

The reason being that there’s a probability greater than zero that the take profit level will be reached. Remember that without the cap the trade will nearly always exit only through the stop loss which is set “beneath” the triggering price level.

Conditional trailing stops

When you use a trailing stop you “trade off” a portion of your profit in order to limit your losses. When you set a trailing stop there is always the chance that the market will not move further in the direction of your trade.

In this case the stop will be triggered at or below your current profit level. Trailing stops work best when the market is moving in the direction of profit. For this reason sometimes it’s better to use what’s called a conditional trailing stop.

With this method the trailing stop only triggers when a certain condition is met. Otherwise the standard stop and take profit is kept. The “condition” is usually based on the market direction.

Momentum based conditions are the most common. With these, the trailing stop activates at a point in time when both the minimum profit level is reached and when the market is moving in the direction of profit.

A basic condition for example can be on price change over a certain number of bars. For example, if the price moves more than +10 pips over 2 bars, the trailing stop activates.

The reason this is used is that when the momentum is in the direction of the trade it’s more likely that the stop level will have a chance to move upwards within the next few bars.

But if the momentum is moving against the trade, there’s a higher chance that the trailing stop will be hit quickly before having a chance to move upwards (downwards) and reach a better profit.

In this case taking the profit immediately is usually the best course rather than applying the trailing stop.

Client side vs broker side stops

One thing to be aware of when using trailing stops is the difference between broker side and client side stops. With a broker-side system the trailing stops are managed as part of the trade order. Once the order is placed and the trailing stop is set, the broker’s trading software will monitor the trade and set the stop accordingly as the market moves.

Client-side trailing stops are executed by the trader’s software. Metatrader for example has a basic trailing stop function as do other trading systems.

Client side stops will only work while the client terminal is open whereas broker side stops are set for the lifetime of the trade. This means when using client-side stops you’ll need to keep your trading terminal open for them to work.

Back Test Results

We back tested the trailing stop systems on two “vanilla” strategies. The first was a trend follower, and the second a breakout system. The tests were run over two durations namely short term (12 months) and long term (10 years).

The maximum leverage used was 1:1 ($100k start balance) and the spread was set to 2.1 pips. We tested each on a single currency pair at a time (GBP/USD and EUR/USD) and used four variations:

  • No trailing stop – using fixed take profit/stop loss points
  • Standard trailing stop
  • Trailing stop with a profit cap
  • Trailing stop with a profit cap and a momentum condition

Summary

Adding both the cap and the condition gave better returns than using a regular trailing stop alone. This came at the expense of slightly higher drawdown.

In the 12-month tests, the trailing stop with cap and condition performed better than using either a trailing stop or using no trailing stops. The strategy with “cap and condition” achieved a profit of $12,524 with drawdown of 2.71%.

With standard trailing stops the total profit was $11,281 with a drawdown of 2.63%. Using fixed ratio profit/stop losses achieved a profit of $12,191 with 2.67% drawdown.

Under-performance at longer Durations

Over longer timeframes both the trailing stop and modified trailing stop (with cap and condition) significantly underperformed the strategies using no trailing stops.

Adding the trailing stop allows profits to run and this did result in a few big winners. The most profitable trade for the standard trailing stop was $372.02. The most profitable trade with cap and condition was $402.5.

However over time this benefit was negated by a lower per trade (average) profit. This is because a trailing stop system has to “give up” a portion of profit in return for a limited loss.

We tested multiple configurations and the trailing stop systems always resulted in lower profits over the longer time periods.

What’s also surprising is that adding the trailing stops didn’t reduce drawdown to any significant level. On the longer test the standard trailing stop reduced drawdown by just 0.18%. But this came at the expense of a 22% drop in profits. The trailing stop with cap and condition increased drawdown slightly by 0.03% but resulted in a 15% reduction in profits.

We also expected the trailing stop to work better with the trend follower as this is its natural territory. But the results were virtually the same with both strategies.

Standard trailing stop test

With the standard trailing stop the trail point was set a certain distance below (or above for short) the current price level. The trail point was initiated as soon as the profit reached 0.3% – (averages 45 pips on GBP/USD or 35 pips on EUR/USD).

The trail point was adjusted only once per interval (5-minute period). With the “non-trailing stop” strategy we used a fixed stop loss/take profit with these points being set at +/-0.9% and +/-0.3% respectively.

Strategy Trail distance Total Profit Avg. per trade Trade count Max drawdown
No trailing stop # $12,191 $28.29 431 2.67%
Trailing stop 15 $11,281 $26.61 424 2.63%
Trailing stop 20 $10,561 $24.91 424 2.63%

Trailing stop with cap

This system added a profit cap above (below for shorts) the current price level. The trail level and cap was re-adjusted just once per time interval (5-minute bar). The trade exited if either the profit point or the trailing stop point was reached during the interval. This modifies the standard trailing stop system (above) where the trade will only exit when the stop loss is reached.

Strategy Trail distance Profit distance Total Profit Avg. per trade Trade count Max drawdown
No trailing stop # # $12,191 $28.29 431 2.67%
Trail with cap 20 5 $12,062 $27.99 431 2.78%
Trail with cap 20 10 $11,346 $26.32 431 2.77%

Trailing stop with cap and condition

The trailing stop with cap (described above) was modified further to add a momentum parameter. The conditional trailing stop only activated if a momentum condition was reached. The condition was that the price distance between the previous two intervals (5-minute bars) was greater (or less for shorts) than the trigger level.

For example with a 10 pip trigger the price needed to move at least 10 pips (up or down depending on trade side) between the previous two bars.

Strategy Trail distance Profit distance Trigger* Total Profit Avg. p/trade Trade count Max drawdown
No trailing stop # # # $12,191 $28.29 431 2.67%
Cap and condition 20 5 10 $12,524 $29.06 431 2.71%
Cap and condition 20 5 20 $12,485 $28.97 431 2.65%

10-Year test

In the longer duration tests we ran the strategies over a ten-year time frame. The results below summarize the highest achieved profits using the standard trailing stop and modified trailing stop system.

The standard trailing stop resulted in a 22% fall in profits compared to using a fixed ratio stop loss/take profit system. The modified trailing stop approach (cap and condition) resulted in a 15% fall in profits over using the unmodified strategy.

On the longer tests neither the standard nor the modified trailing stop system reduced drawdown to any significant level. This was the accumulative effect of the running profits being lower compared to the vanilla strategy.

Strategy Total Profit Avg. per trade Trade count Max drawdown
No trailing stop $139,143 $22.76 6113 10.05%
Cap and condition $121,195 $19.80 6120 10.08%
Standard trailing stop $114,491 $18.74 6108 9.87%

Are Trailing Stops Worth Using?

What we found in our tests was as follows:

  • Trailing stops with caps outperform the standard trailing stop system. Adding the “condition” improved the performance of both systems.
  • The performance gain of the two trailing stop systems comes at the expense of slightly higher drawdown. However given the large profit differential the trade-off seems worth it.
  • In the shorter back tests (one year or less) using a trailing stop with cap outperformed a fixed ratio stop loss/take profit system.
  • In longer duration tests all of the trailing stop systems significantly underperformed a fixed ratio stop loss/take profit system. The profit reductions we observed were between 15% but also up to as much as 30%.
  • Over the longer duration (10 year tests) none of trailing stop systems reduced drawdown to any significant level.

The key point to note about trailing stops is that “locking in a minimum profit” always comes at the expense of a slight reduction in profit on each trade.

It is true that letting profits run, as trailing stops do, increases the odds of a few big wins. But over the long term the lower profit average on each trade becomes significant. This cumulative effect is most noticeable with high frequency trading strategies.

So are trailing stops worth using? There may be other strategies that work better with trailing stops. For example where the trailing stop results in trades being held open much longer and as such this could lower trading costs. This hasn’t been tested here.

There may also be the case for using them for manual trades where discretionary input of the trader is available.

How To Increase Your Trading Profits by 3729% And Cut Commissions by 80%

By Galen Woods in Trading Articles on February 25, 2020

Am I selling a black-box trading system? Or a well-kept break-through technique to turbo-charge your trading profits?

No, you don’t have to pay a single cent for this. And there is nothing secretive about what I am going to share.

Some of you might already know what is coming, especially those who have kept excellent records of their trading activities.

This money-saving (and money-making) idea works with most trading strategies.

Case Study: Trend Bar Failure Strategy

In this example , we will use the Trend Bar Failure setup, which is a pattern discussed in my “Day Trading with Price Action” course.

Strategy Back-test

  • Instrument: 6E futures (EUR/USD)
  • Time-frame: 1-hour
  • Period: 23/2/2020 to 23/2/2020
  • Stop-loss: Pattern stop
  • Target: Average hourly range x 2

With these parameters, we lost $62.40 trading one contract per trade. But that is not the point.

The three most profitable hours are within a five-hour period.

What do we do with this information?

Let’s re-run the back-test. This time, we will be lazy and trade only during the five-hour period.

The table below compares the two sets of trading results.

By restricting our trading hours and settling for less action, we have managed to:

  • Decrease our commissions by 80%
  • Increase our trading profits by 3729%

Do you want to pay $62.40 to take 110 trades? Or do you prefer to take 23 trades and make $2,264.68?

This case study is not about trading Trend Bar Failures using a mechanical approach. If you want to learn more about this simple price action trading strategy, you should refer to this article.

The real takeaway here is the impact your trading hours has on your trading profits.

More Trading Profits For Trading Less

Trading less is more, if you know when to trade.

We can earn more if we know which are the best hours to trade and stick with them.

The best hours to trade depends on many factors including the market you are trading, your trading time-frame, and your trading strategy.

As a rule of thumb, most active trading strategies do better during higher volatility periods.

Back-test your trading strategy like what we did above to gain insights on which are the profitable hours. If you trade with a discretionary strategy and find it hard to back-test mechanically, you can do manual back-testing.

However, manual back-testing is tedious and has greater room for error. So, if you have kept good records of your trades, you can put them to use now. Check your trading records to see if your profitable trades tend to cluster within a certain time period each day. Go through the day trading evaluation cycle and find when to take the best trades.

Examine your trades and you might uncover when you should trade to maximize your trading profits. It is time to forget about taking as many trades as you can. Trade only when it matters.

Take a closer look at your trading records now and uncover this hidden gem in plain sight.

You might realize that trading the first two hours of each trading session makes you more money than trading the entire session. On top of that, you get to free your time from trading and spend them with your loved ones.

Trading Journal: How to Track Your Trades to Optimize Your Performance

Trading Journal – Introduction

We don’t know of a single successful trader that doesn’t keep a trading journal.

There is a reason why successful businesses keep detailed records! They use the data to analyze and optimize their operations!

Trading is no different. The most important thing that you can do to cut your learning curve is to treat it like a business and keep a detailed trading journal.

Many struggling traders don’t keep journals, let alone know what they are!

Why might this be the case?

Put it this way.

Digging into your emotions pre, during and after trades will unlock incredible insight into your strengths and weaknesses.

This will help you optimize your strategy and identify areas to work on for improvement. That is how successful traders operate!

Many losing traders jump between strategies looking for the holy grail. We believe that a trading journal IS the holy grail!

In this post, we’ll break down the process of keeping a trading journal so that you can unlock your true trading potential!

Trading Journal – What to Track?

By tracking it you can master it. Remember that!

Most traders stick to the basic metrics when creating trading journals.

These can include entry, exits, position size, as well as net profit & loss.

While this is a good start, we want to go deeper than just the P/L from your broker statement.

We also want to track the factors that can affect trading performance such as emotions, market sentiment & analysis, as well as trade qualifiers/disqualifiers.

What Do We Track?

Since we are day traders, we keep a trading journal for every single session, whether we traded or not. Swing traders will benefit from tracking each trade, before, during and after execution.

The relevant metrics that we like to use for our trading journal are as follow:

(2) Position size used

(3) Whether we went long or short & why

(4) Strategy used to execute trade

(5) Time and date of trade

(8) Final P/L Result

(8) Screenshots of the trades

(9) Notes with regards to why we took/disqualified the trades

(10) Session and/or Trade Grading

Trading Journal – How to review and optimize your edge

If you keep disciplined and consistently update your trading journal, then you should have a nice set of data to review. Here is what to look for in order to optimize your edge and improve your trading results!

  1. Identify patterns that may be leading to losers and find ways to minimize/mitigate them.
  2. Identify patterns that lead to your winners and find ways to maximize your profits.

Let me explain…

Losing trades are part and parcel of this business, however, not every loss is the same! For each loss that you take, you want to make sure that it was a valid setup in the first place.

Ask yourself, “How can I minimize my losses”? If you find that you tend to perform the worst on a certain date of the week, you might consider not trading it moving forward. What if you find that you are getting the direction right, but getting stopped out of trades before the real move happens far too often? Perhaps you are getting in too early and can add a filter to reduce your losses.

Your winning trades are just as important for your development as the losers. Sometimes we get rewarded for breaking our rules, so you’ll want to review each winning trade to ensure it was a valid setup in the first place. If the profit was a result of a mistake or rule-breaking, make a note of it. You’ll want to look for patterns that lead to your winning trades. Is there a certain setup you should focus on? Are there days you seem to perform best? Are there times of day that you trade the best during? These are all things that should be noted and review on a continuous basis.

After reviewing your winners, ask yourself “how can I maximize my profits on my winners?”. Whether it’s scaling out of a portion of the position to lock in profit and letting the rest run or utilizing a more effective way of manually trailing your stops, this should be a big focus during your review.

If you can do these things successfully, you will be well on your way to becoming the best trader that you can be! Is it starting to make sense why a trading journal is so crucial to your development?

Trading Journal – Free Tools

Evernote

With a free and paid version, this is our preferred tool for keeping our trading journal. The free version allows a monthly upload limit of 60 MB and should suffice for most new traders. You can take screenshots directly into the notes, annotate images, create notebooks and tag notes making it easy to keep a detailed journal.

Google Docs

Another free tool that can be accessed with a Gmail email address. A great alternative to Evernote which can be used to write down thoughts and analysis of the markets.

Windows Snipping Tool/Mac Screenshot Tool

If your trading platform does not offer the option to copy charts directly from the platform, then this is a great option to get screenshots of your charts into your trading journal.

Microsoft Paint

Another free image editing tool out of Microsoft which you can use to edit and annotate your charts as needed.

Trading Journal – The Full Process

By now you should understand the importance of keeping a trading journal, as well as, the metrics to track and how to review and optimize your performance going forward.

If there is still any confusion, have no fear! We made this video to walk you through the complete process of creating a trading journal which puts together all of the concepts introduced above.

Grab a coffee or a beverage of choice and enjoy the video!

Trading Journal – Final Thoughts

A trading journal is a deciding factor between the 5% of traders that are consistently profitable and the 95% that lose money.

Keeping a diary of your trading activity will help you review your results, weed out any weaknesses and highlight your strengths. Which in effect will help you optimize your strategy, increase performance and maximize profits!

If you don’t already, make sure to start keeping a trading journal as soon as possible and see the benefits that it can provide for your trading!

If you want to join us in our live trading room, check out the Pro Trader package here >

Want to trade more passively, checkout our newsletter, trade ideas and live analysis in the Swing Trader package here >

The information contained in this post is solely for educational purposes, and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable to your own financial situation. TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    The Best Binary Broker 2020!
    Perfect For Beginners!
    Free Trading Education!
    Free Demo Account!
    Get Your Sign-up Bonus Now!

  • Binomo
    Binomo

    Good Broker For Experienced Traders!

Like this post? Please share to your friends:
How To Do Binary Options Trading?
Leave a Reply

;-) :| :x :twisted: :smile: :shock: :sad: :roll: :razz: :oops: :o :mrgreen: :lol: :idea: :grin: :evil: :cry: :cool: :arrow: :???: :?: :!: