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Function Based Trailing Stop Mechanisms

Function Based, Trailing Stop, Mechanisms, positive results, Trading Systems, fx trader, forex trading systems forex

A key to achieving positive results with trading systems is to have adequate mechanisms for exit management. Once a position is opened a trader must ensure that losses are cut short and yet leave enough room for the trade to progress favorably under normal market volatility. This means that traders must tolerate certain movements against their position, yet be eager to close a position that fails to evolve favorably after some time. If we assume that the probability of a favorable outcome decreases as a function of time then it becomes clear that we should both reduce the amount of money we are willing to lose and increase our expectation of profit as time passes after a position is opened.

In order to ensure that this is the case we can implement function based trailing stops that are independent of the market’s price action. This means that the movement of the stop loss will contain an expectation of where price should be – regardless of what the market does – allowing a trader to lose less money as a trade progresses without the need for a specific minimum favorable movement as is the case for a traditional market movement based trailing stop.

Function Based, Trailing Stop, Mechanisms, positive results, Trading Systems, fx trader, forex
 

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