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December 17, 2017

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Insider TA's Stoploss and Trailing Stop Methods

INSIDER TA Pro supplements its BA and VA RANK trading signals by offering Stop Loss and Trailing Stop exit signals. Volume has no influence on the generation of these signals. They are governed exclusively by price movement, and are generated against BA and VA RANK "buy" and "sell" tags only. They are not inserted for actual transactions that you log into the system.


NOTE: These functions are fully supported in the Pro Version. For demonstration purposes, it remains integrated in the Standard and Demo versions, but is limited to working with demo files.
The Stoploss/TrailingStop parameters are adjusted in the "Stoploss Configuration" panel in the "Yields" section of the CONFIG OPTIONS panel. As you can see, it comprises three switches, and all represent percentage values.
  1. The red switch (set here to -10%) represents the stoploss setting.
  2. The purple switch (12%) represents the minimum desired profit.
  3. The green switch (70%) is the percent savings factor.
The example that follows uses these switch settings.
Config Options Panel
Stoplosses 

A stoploss tag occurs at some point after a buy tag whenever the price midpoint falls a certain percentage below the buy point. 

For simplicity, let's presume a BA buy tag was generated at $100 (see Figure 1).  Let's also say we anticipate a 12% profit, but if we're wrong and the stock price falls, we want to diminish our losses by setting a stoploss level at -10%. This means a stoploss signal will be generated if the price midpoint ever drops below $90 (10% of $100 is $10; $100 minus $10 equals $90). This is observed on day #6 in Figure 1.

On the other hand, if the stock price rises up and beyond our 12% threshold, then a trailing stop would be implemented.

Stoploss Diagram
Trailing Stops

A trailing stop is intended to protect the profit already achieved, but only after the price midpoint reaches, or rises above, a preset "target" profit level.  In our example, our target profit is 12% which, for a $100 buy, is $112. This is marked by a horizontal purple line in Figure 2. 

Our goal is to maintain some percentage of our profit at all times (any value between 5% and 95% is acceptable, but lets say we select 70%). This will be used to determine the trailing stop level.

On Day #4, the price midpoint hit $114, exceeding our 12% threshold, so a trailing stop level is initialized to 70% of the $14 profit. Observe the green trailing stop line at $109.80 in Figure 2. 

Note that after a trailing stop is activated, the original stoploss level is no longer applicable.

Trailing Stop Diagram #1
In Figure 3, on day #5 , the price rises even higher to $120.  In order to protect 70% of this higher profit ($20), the trailing stop level is adjusted to $114.

The process repeats itself if the price continues to climb, but...

Trailing Stop Diagram #1
...should the price fall below the current trailing stop level, as seen on day #7 in Figure 4, then a trailing stop tag would occur, thus protecting a percentage of the profit seen so far.
Trailing Stop Diagram #2

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