Successful day trading requires more traders to be profitable than not AND for those trades to be worth more than the losses. Another requirement is to reduce risk wherever possible. What if there was a way to “lock in” the profit you’ve already made on a trade? Well, there is and the technique is called trailing stops. You may also hear “trailing a stop” or “chandelier stop” to refer to this strategy.
Finding a high-probability trade is the first step. Trailing stops work best when you find a trade early. John Paul from DayTradeToWin.com teaches several techniques that find trades before the big move is executed: the Roadmap (taught in Mentorship only), Atlas Line, and X-5 to name a few. Providing you got into a profitable trade early, on the ride up, you can deploy a parachute that tells the market “get me partially out at this price with this many contracts.” By partially exiting the position, you are trying to make profit with the gains earned thus far. You are hoping the rest of the right up will be profitable. If it’s not, well, at least you locked in something earlier and hopefully the trade will be break-even at most.
Ideas for Trailing Stops
To use trailing stops, you have to trade with more than one contract. As a general rule, John Paul recommends at least $4,000 in a funded live account to comfortably trade up to two contracts. Keep this ratio in mind as you scale up. Do so slowly and judiciously, as the market can trick you in the short term and bring long-term surprises.
Trailing stops are easiest to work with in multiples of two. That means two contracts per trade minimum. It’s up to you to decide how many contracts to close out. Half is what John Paul sometimes uses. Also, keep in mind that you can change your approach on what triggers the trailing stop. Do you want to base it on the ATR (Average True Range)? Perhaps you want to have it as a fixed percentage of your profit target (i.e. half)? What about a fixed dollar amount? Watch the video to see John Paul’s ideas.