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Another way is to purchase an option.
Now I know there was discussion on this forum a while back about using that
strategy instead of a stop. Now I don't think for a minute that a standard
strategy of using stops instead of options when you initally enter a trade
would result in overall profit, but what about purchasing one when your
trade reaches its profit goal? That way you could stay in the trade and
control risk.
Of course you have to watch implied volatility to be sure you're not being
ripped off for such insurance and you have to have some time horizon in
mind.
Look at it this way....Say an insurance salesperson comes to your office
and says, "Look pal, I see you have $1000 in open profit on that trade. For
an insurance premium of $250 I'll insure you against any loss on the trade
and let you keep any additional profits that come your way. That way you
won't have to put a stop in the market."
Sometimes that might make sense and sometimes it wouldn't.
-RB
>There is one other way and that is to reduce your position when the
>volatility excedes your risk allowance.
>
>Neal Hughes wrote:
>
>> Conrad,
>>
>> You're running into the standard problem with trailing stops,
>> you lose profit when you try to exit the trade in the direction
>> of a new trend/movement. So in a fast-moving market you are exiting
>> with everyone else in a panic market. In a slow-moving market the
>> loss of profits is less, but the possibility of whipsaw is increased.
>>
>> I've not found a magic solution, but what works for me is to have
>> a pre calculated profit objective. This gets me out near a peak before
>> it turns and erodes profit. The disadvantage then is a) sometime
>> price does not reach my profit objective (too greedy), and
>> I also miss out on "big moves". However, there is nothing to
>> stop me getting back into the market in a "big move", so that
>> downside is not too critical.
>>
>> You could compromise and exit half your position with a trailing
>> stop and half with a profit objective?
>>
>> -Neal.
>>
>> ---
>> DiNapoli Fibonacci techniques -
>> http://www.fibtrader.com
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