Trailing Stop Loss


#1

If we poke at Trailing Stop Loss once what happens afterwards? Can it still follow the price in profit direction or it stops following the price?

Assume the following

Trade direction = Long
CMP - Current Market Price = 100
TSL - Trailing Stop Loss = 5 points
Target = 15 points
Order type = Bracket Order

When the price moves to 107 the TSL would have moved to 100. However if we manually move the TSL to say 103 to guarantee 3 points profit, what happens afterwards? If the price starts moving upwards can the TSL still follow the price or will it remain at 103 only?


#2

Trade direction = Long
CMP - Current Market Price = 100
TSL - Trailing Stop Loss = 5 points
Target = 15 points
Order type = Bracket Order

Your TSL will activate once you have reached the TSL points in profit.
In this case, its 105. So if there’s a downturn, it will take it as nearest candle minus TSL… so 106.5 as cmp minus 5= 101.5.

As long as there’s no downturn of 5 points, TSL will continue to go up, but it will not go below your long price of 100.
If there’s resistance at 113-114 and price suddenly drops 10 points… you are insured.
You will have an exit at around 108+.

Hope this clarifies… TSL is upwards dynamic.


#3

Thanks for the response. I understand how TSL works. My concern was what happens if I manually change TSL level during trade? Can it still follow the price in profit direction without my intervention again?

Correct me if if I’m wrong. My understanding is, on its own TSL follows price in profit direction in steps. So in the above case the TSL can jump from 95 => 100 => 105 => 110 and not some prices in between. So TSL can never be 101.5 as you mentioned.


#4

Hi Arun,

TSL goes by CMP of last candle.

@ 105 cmp, tsl= 100

106::101
107.35: 102.35
111.9:: 106.9

Now to your question: ’ Can TSL be changed midway’
Yes, absolutely yes… then it will be last cmp minus 3 rupees downturn on the immediate candle.

if it is a tight range at 112.4 and you want to insure your gains, you would change the TSL to 3 instead of 5… when you fear that a tight range could lead to a breakout in either direction.

So, your exit will happen at cmp minus 3 points which would be 109.4.


#5

Candles of what duration? 1m, 5m, 15m etc?


#6

Sorry for not being clear…

I should have used the term LTP instead of candle.

so yes, it would be the previous 1 minute candle.
Thanks for asking.


#7

Hi Joe Chris,

Once again Thank You for your response.

Anyone can correct me if I understood something wrongly.

“TSL goes by CMP of last candle.” ==>My understanding is that it goes by tick data not as per any candle price.

“When the price reaches 106 the Stop Loss would be at 101” ==> I don’t think so. Because I specified TSL as 5 the Stop Loss would remain at 100 only. The price has to go 5 points in the profit direction to make the Stop Loss make a move of 5 points below the price. In this particular example case the Stop Loss would move by 5 points at a time and it can’t make 1 or 2 point moves. If the price goes to 109 the SL would still remain at 100 only. When the price reaches 110 only then the Stop Loss can move to 105 but by then the target Limit order would have executed with profit. Am I correct?

After a Bracket Order got executed, it usually creates two orders

  1. Limit order to exit with profit
  2. Stop Loss order to exit with minimal losses if trade reverses.

I’m talking about Sl.No.2 above. This order’s trigger level will get changed automatically in defined steps as the price moves in profit direction. I know I can manually change the trigger limit on this order any number of times during trading. My question was what happens after I change this trigger limit manually. Can it once again follow the price without my intervention or it loses its ability to follow the price in profit direction?

Regards
R Arun


#8

Hi Arun,

There’s a huge difference between TSL and SL.

SL is fixed while TSL is dynamic.

If you are checking about SL, yes it can be changed to any level below the market price.

If your Long was bought at 100 and your SL was 5,

after your long reached substantially over 100, you are welcome to edit the SL to any level as long as it is below the cmp.

But trailing stops are very different and are used in trending charts mostly… when you know that the upside is unlimited and the downside volatility is measured.

TSL once activated ensures you end is some profit.
SL ensures your loss is minimized.

Regards, John


#9

No 1 is your target
No 2 is your defined stop loss

There is a third option which you find… that is Trailing stop loss.
It helps you protect your gains.

(if you bought at 100 and price went upto 110 and in a minutes madness, the price fell to 92:
if you had kept an sl of 3 points and a tsl of 1 point…)

you would have lost only 1 rupee/ trade ie… from a potential 10 rupees profit, you end up with 9.
if you had no tsl but only sl… then you would have seen your 10 rupees profit turn into 3 rupee loss in a minutes rush.

I hope this clarifies.


#10

Hi Arun,

I did some reading and realise my understanding was flawed.

A tsl of 1 point will change with very 1 point movement in your direction, same with a 3 point tsl will not change until there was 3 points movement.

So you are correct on this bit.


#11

Joe Chris I really appreciate your responses and the time you took. Thank You.

I have no doubt about the differences between Stop Loss, Trailing Stop Loss etc.

My question was what happens if we poke manually at a Trailing Stop Loss order. After poking by us does it lose its ability to follow the price?


#12

Hi Arun,

The new trailing stop loss will be effective as the previous one and will help you ride the trend… It has no difference.
The only thing to maintain is, increase the TSL if the trend has whipsaws, and decrease the TSL if the trend has reached a level of resistance.

These are my two bits… feel free to share your understanding as well.


#13

Are you changing the SL or TSL manually? I think you are changing the SL not TSL after order is executed


#14

Arun, a stop loss has no more relevance after your TSL is activated… What do you think?


#15

Once the trade executes other than the Take Profit Limit Order, there will be only one Stop Loss order which trails the price. There won’t be two different SL / TSL orders.


#16

absolutely


#17

Once the trade executes other than the Take Profit Limit Order, there will be only one Stop Loss order which trails the price. There won’t be two different SL / TSL orders. We can’t change the TSL points during trade however we can manually change the trigger price of this order.


#18

This is what I wanted to get confirmed.


#19

Thanks for highlighting that… its easier if I were doing a live trade to have picked that up.

Thanks… You are correct.