Trailing Stops

Once we are in a trade and it is going our way, we use Trailing Stops to trail our trade.

We can Trail our Stop using several methods:

• Trail the stop using the 20 day moving average

• Trail the stop using the lowest low value of the past 3 days

• Trail the stop using 1.5 times the ATR value, etc.

In our example, let us trail our stop using the Lowest Low Value of the past 3 days. We chart this in red:

In this example:
• Our Initial Stop was not hit, and
• We Trailed our Stop for about one month.

Here are some statistics for our paper trade:
• May 19: Trail Stop – stopped out at $184 (say)
• Apri 16: Entry at $153.30 (say)
• Period = About 30 days
• Profit = About $30.70 ($184 - 153.30)
• ROI on Stock = 20% ($30.70 / $153.30)

Let’s do a rough calculation for our Options profit:
• April 16: Entry when Stock Price is at $153.30,
• April 16: Buy July 140 Calls at $20 .
• May 19: Stopped out at $184.
• Stock Profit = $ 30.70
• Value of July 140 Calls on May 19 = $20 + $ 30.70 = $50.70, say $50.
• Period = About 30 days
• So, ROI on Option = 153.5% ($30.70 / $20)

 Not bad for one months worth of trade!

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