Percentage Trailing Stops

Percentage Trailing Stops is a simple trend-following system that trails a stop loss above/below the current price, depending on trend direction. The system uses a stop-and-reverse mechanism similar to Welles Wilder's Parabolic SAR or Average True Range Trailing Stops.

Percentage Trailing Stop Signals

The signals are used for exits.

• Exit your long position when price crosses below the Percentage Trailing Stop line.
• Exit your short position when price crosses above the Percentage Trailing Stop line.

Example

The RJ CRB Commodities Index late 2008 down-trend is displayed with Percentage Trailing Stop (10%, Closing Price) and 63-day exponential moving average used as a trend filter.

Mouse over chart captions to display trading signals.

1. Go short [S] when price closes below the 63-day moving average and the trailing stop
2. Exit [X] when price crosses above the ATR stop

Setup

The default is set as 10 percent.

Closing Price is set as the default option. The alternative is High/Low (see Formula below).

See Indicator Panel for directions on how to set up an indicator — and Edit Indicator Settings to change the settings.

Percentage Trailing Stops Formula

Trailing stops are normally calculated using closing prices:

1. In an up-trend, subtract 10 percent from the Closing Price and plot the result as the stop for the following day
2. If price closes below trailing stop, add 10 percent to the Closing Price — to track a Short trade
3. Otherwise, continue subtracting 10 percent from Closing Price each day until price reverses below the trailing stop
4. There is also built in a ratchet mechanism so that ATR stops do not move lower during a Long trade nor rise during a Short trade.

If you select the High/Low option, the trailing stop is calculated using the daily High in an up-trend — and the daily Low in a down-trend.

Evaluation

More volatile stocks require larger percentages. Down-trends are also more volatile than up-trends and may need wider percentage stops.