Hmmm... as a general rule, it is said one should "cut losses and let profits run" ...
Most trading authors suggest in the 2-3% range as a trailing stop but this of course is to establish the use of stops as a money management tool for the novice trader.
Pro's all use trailing stops of one kind or another as statistics are against holding onto losing positions.
One such statistic shows that a negative break thru a 5% stop will continue downwards 84% of the time so gambling on the 1:5 is a sure bet to the poor house.
However, trading styles all differ as does risk profile so no fixed rules here except that a trailing stop of some kind is necessary.
Derivatives traders certainly use stops .. at entry and trailing as risk and reward profiles mean exits at critical times are necessary to avoid leveraged losses should a position move against the trader ...
Market conditions also determine the stop settings ... the Bull Market of the 90's meant that stocks ran more confidently and this translated into more certanty ... the Market today is quite different. Traders who were accustomed to swings lasting a couple of weeks are now lucky is a pozzie lasts a couple of days before stalling.
Such Market conditions mean a trader will be 'stopped-out' often and translates into ADAPTING ... remembering that it is better to be 'out' and parked safely than taking a sweat bath over a losing pozzie.
The Market will never run out of trades ...
This means that traders need to also remember that trailing stops are also inextricably linked to EGO ... pulling the pin is never easy even for the Pro's.
The general rule is to always protect CAPITAL first and PROFITS second so these rules are designed to KEEP ONE IN THE GAME ... once your bank is gone so are you !!!
