CFA Level I Course - Intensive Level I Training

The multiple contract procedure combines, what I feel is the best of both situations, allowing you to have your profit and keep your trade as well. A trailing stop loss may also be used. Although there is evidence to suggest that trailing stop losses for position trades do not work well, this is not necessarily true for day trades where the time length of a position is clearly finite.

In the case of a runaway move in your favor, I suggest you follow up with either an ho-u-r ly or a half-hourly stop using the last half hour low or high as your stop loss point. So, for example, if you have entered an S&P gap trade on the long side which then moves sharply in your favor and continues to move in your favor for a fairly extended period during the day, follow up that position by placing a stop loss below the low of the previous half hour or the previous hour if you prefer.

In the case of a short position which has moved strongly in your favor, follow up by placing a stop loss above the high of the previous half hour or hour if you prefer and change your stop loss every hour. By doing this, you will be taken out of your position fairly quickly once the intraday trend has reversed itself.

Top