TSL

Recently, I've been experimenting with the use of trailing stop losses instead of stop losses. The logic is that I'm setting wide stop losses since I'm speculating on structural moves based off of the 4-hour and/or daily timeframes. If a move takes off and then reverts, a trailing stop loss should better limit my downside. Or so I thought.

Optimizing the initial stop loss placement and configuring the trailing stop loss is still a bit of a challenge. One of two things tend to happen:
  1. I would get stopped out with a small loss.

  2. I would get stopped out with a small profit. Take profit would not hit.
Here are two trade examples showing this.

USDCAD 1-Hour

After several continuous sell-offs, price leveled off and then failed to push to a new lower low. I entered into a long position as price broke to the upside. This entry was made with a trailing stop loss.

Price started to uptick higher shortly after my entry. However, the latest bar shows a pullback spike. As a result, I was stopped out. If I had set a stop loss instead of a trailing stop loss, this trade would've been active. There would've been an opportunity to monitor this position and see if the sudden downward spike could be faded.

EURAUD 4-Hour

Likewise, I entered a short position after spotting this channel breakout. After price reverted back above the lower range boundary, I was stopped out with a smaller loss (in comparison with the original stop loss placement).

In both of these situations, I could've monitored the price action and given some breathing room for the trades to play out.

Tentatively, I've stopped configuring trailing stop losses. They didn't really give me a chance to let the trades play out. Noises on the lower timeframes will stop out my trades despite the persistence of the breakout signals on the higher timeframes.

My theory is that trailing stop losses works best if you're pursuing a pure momentum play. If momentum is present, you keep riding the trend. Otherwise, you'll get out with a minimal loss. This might work best in equities or futures where prices have a natural directional bias.