Time and trailing stops
The system under study incorporates a time stop. The trade exits at the end of the New York forex trading session regardless of profit or loss. This would be a session-based time stop. Another type would be the period-based time stop. The trade is closed after some number of chart periods have elapsed. For example, if a trade fails to show a profit after a certain amount of time, it is closed by the time stop.
Another important stop is the trailing stop. As its name implies, this stop trails the market in an attempt to lock in a portion of accumulated profit. A trailing stop moves only in the direction of profit, with the frequency and distance of its moves determined by the trader or system developer. When the market retraces, the trailing stop stays where it is.
For our model system, a trailing stop could be a better alternative to profit management than the use of the profit target.
Neil Rosenthal is a retired dentist who trades his own account. He also is an experienced computer programmer. He can be reached at email@example.com.