Warning stops, limits, trailing stops, and stop limits are difficult to understand and simulate. You may not understand this tip unless you are a trader experienced with these concepts. It is beyond the scope of our technical support services to educate you in these concepts, so this tip should be examined only by the most advanced users. Furthermore, we often argue that trailing stops should be considered “insurance” in case your trading strategy fails, rather than an integral part of the strategy itself. Even though we allow trailing stops in trading strategies and will even optimize them, you may want to consider using the insurance concept and keep the trailing stops between you and your broker.

In the NeuroShell Trader, the Trailing Stop and Exit Order are considered two distinct methods of exiting a position. The NeuroShell Trader does not currently allow multiple exit methods for the same bar, so it must make a decision on each bar with regard to which of these exit methods shall be used. Currently, the NeuroShell Trader gives the Exit Order precedence over a Trailing Stop. To understand how this works, take the following examples:

Example 1:

Long Entry: Condition A (market order)
Long Trailing: Price X
Long Exit: Condition B (market order)

This Trading Strategy will enter a long position whenever Condition A becomes True. A long trailing stop order will be placed at the Price X after every bar for which Condition B is NOT true. If Price X is reached before Condition B ever becomes True, then the position is exited via the stop order. However, if Condition B becomes True before Price X is reached, then the position is exited with a market order on the bar following the bar on which Condition B was true.

Example 2:

Long Entry: Condition A (market order)
Long Trailing: Price X
Long Exit: Condition B (Limit Order at Price Y)

This Trading Strategy will enter a long position whenever the Condition A becomes True. The long trailing stop order will be placed at the Price X after every bar for which Condition B is NOT true. If Price X is reached before Condition B ever becomes True, then the position is exited via the stop order. However, if the Condition B becomes True before Price X is reached, then a limit order at Price Y is placed for the bar following the bar on which the Condition B was true. If the Price Y is hit on that bar, then the position is exited via the limit order. However, if the Price Y is not hit on that bar, then the position is not exited and the evaluation of which method to use on the next bar starts over again (i.e. if Condition B is not true on the next bar, then a stop order at Price X is placed for the subsequent bar, otherwise a limit order at Price Y is placed for the subsequent bar).

Note: Please read “Limit price processing differences between release 4.9 and 5.0” under “Known major bugs, fixes, and warnings” to see how limits in this tip should be interpreted in release 5.0.