Let’s examine the popular settlement method among traders: the trailing stop.
A trailing stop is an order that trails the stop-loss level (stop-limit) in the favorable direction when the market moves. It’s widely used by Japanese traders.
However, when it comes to EA (Expert Advisor) automated trading, does the trailing stop prove effective?
I incorporated the logic of a trend-following EA into the first test.
I’ve added a trailing stop to my developed EA, PerfectOrder GBP/JPY.
https://www.gogojungle.co.jp/systemtrade/fx/30753
Despite conducting backtests under various conditions, the performance worsened for all settings.”
For an EA with simple trading logic like “PerfectOrderGBP/JPY,” trailing stops are not beneficial. Trend-following strategies, such as perfect orders or golden crosses, do not align well with trailing stops.
Is the second test effective for day trading and scalping EAs?
I’ve added a trailing stop feature to the EA “MTF Trading USDJPY” that uses multi-time frame analysis.
https://www.gogojungle.co.jp/systemtrade/fx/49955
Multiple time frame analysis is simply the process of looking at the same currency pair and price but on different time frames.By analyzing these different time frames,traders gain various perspectives and views of a currency pair.
The test results are as follows.I’ll omit the detailed explanation of the test results,but the trailing stop did not have any effect.
Next, I tested the EA called ‘Multi Trend USDJPY.’
This EA utilizes a logic based on multiple currency analysis.
https://www.gogojungle.co.jp/systemtrade/fx/50141
The test results were stable for USD/JPY with a trailing stop rate of 100 pips.
In EUR/JPY and GBP/JPY, using a stop-limit order with a 100-pip trailing stop results in decreased performance.
For EUR/JPY and GBP/JPY, setting a stop-limit order at 400 pips has resulted in stable performance.
For USD/JPY, even with trailing stops disabled,the profits remain similar,indicating that the impact of trailing stops is minimal.
Final test.Testing with the ultimate scalping EA that maximizes trading frequency.
Then, I conducted backtesting with the scalping EA ‘Multi Scalping USD/JPY’.
https://www.gogojungle.co.jp/systemtrade/fx/50456
When setting a 120-pip stop-limit order for USD/JPY,the profit factor was 1.12.
Next, here are the results when the trailing stop’s stop-limit order is expanded to 400 pips.The profit factor decreased to 1.11.
Narrowing the stop-limit order and increasing the frequency of trailing stops tends to yield better performance. However,in scalping-type EAs, logic-based closures occur too quickly,resulting in very few trailing stop-based closures.
Whether you enable or disable the trailing stop, the profits are nearly the same.However, this trading method is very popular among Japanese traders.Even if the impact is minimal, there are benefits to implementing it.
Conclusion
Expert Advisors (EAs) automatically handle trade closures.Since logic-based closures occur automatically,there’s no need for mechanical closures like trailing stops.it’s important to note that incorporating trailing stops doesn’t necessarily lead to improved performance.
Many Japanese EA creators claim that trailing stops are ineffective.Based on this, it seems that trailing stops won’t be a significant factor in future EA development.
However, since trailing stops are a popular method in Japan,adding them to an EA’s closure logic remains crucial for enhancing the product’s value.