The Best Trailing Stop Loss is designed to protect gains by enabling a trade to remain open and continue to profit as long as the price is moving in the investor’s favor.

This way you can let the trend continue in your favor but lock in your profits once the stock turns around.

The trailing stop is a very useful exit for traders that simplifies the process of letting winners run but keeping losses small.

The Key To The Best Trailing Stop

The key to the best trailing stop is that it needs to be loose enough that the stock has room to trend upwards. But it cannot be too loose or you will give back too much profit when the trend changes.

For example, in the Tesla chart below, you can see that the 5% trailing stop is too tight. It doesn’t allow the trend to develop and we take too many trades instead of following the trend:

Which Trailing Stop Loss Should You Use?

I’m going to test a selection of them on historical data going back 30 years across more than 11,000 US stocks. We are going to use a new 252 DAY HIGH as a buy signal and then see which trailing stop produces the most profit while limiting risk. The trailing stop loss options we are going to test are as follows:

• Percent trailing stop
• ATR trailing stop (Chandelier)
• Moving average trailing stop
• Parabolic SAR trailing stop

1. Percent Trailing Stop

This is the simplest trailing stop. Whenever the stock trades X% below it’s in-trade high then we will exit the stock on the next day open. For example, if we buy Apple at $100 with a 20% trailing stop and it hits a high of $200 we will exit if the stock drops back to $160. The following table shows the effectiveness of the percent trailing stop following a new 252-day high in the Russell 3000 from 7/1990 to 1/2020:

As you can see, the 20% and 25% trailing stop produced the best return-to-risk scores with a reasonable win rate and profit per trade.

2. Chandelier Trailing Stop

The chandelier trailing stop uses the average true range indicator (ATR) to position the stop a certain number of points away from the action. The advantage of this technique is that it takes into account the volatility of the stock and places the stop a certain multiplier away. For example, if Apple is trading at $100 and we use a 5 x ATR(21) stop, the stop will be placed 5 times the ATR(21) below the recent high. If the ATR is $5 then the stop will be placed 25 points away (5 x 5). In this test we are going to use the 21-period ATR and vary the multiplier to test and see if it is Best Trailing Stop Loss:

3. Moving Average Trailing Stop

The moving average trailing stop works like this. Once we enter the trade (a new 252-day high) we will follow it with a simple moving average line. If the trend changes and the stock drops under the moving average line we will then exit the trade on the next day open. The following table shows our results across different moving average lengths:

4. Parabolic SAR Trailing Stop

The parabolic SAR indicator rises according to specified parameters. But unlike the usual trailing stop, PSAR continues to move higher even as the stock stays where it is or declines. This means there is an element of time involved so essentially, the stock is penalized for not continuing the trend upwards. The PSAR indicator is made up of two parameters, acceleration factor and max acceleration. These are usually set up as 0.02 and 0.2, however, I found those parameters to be too fast. The following table shows our results for various permutations:

The Parabolic SAR indicator produced some good return-to-risk scores particularly with small parameters (much smaller than most traders use).

Which Trailing Stop Works The Best?

The results shown above provide some answers as to which trailing stop works best in stocks.

• The best trailing stop by return-to-risk was the 20% trailing stop with a score of 0.57. This was followed by the 25% trailing stop and the 15% trailing stop.
• The best trailing stop according to average profit per trade was the 50% trailing stop with an average profit of 82.72%.
• The 50% trailing stop also had the highest win rate at 53.3%. However, the 50% trailing stop naturally has a high drawdown and trade duration.
• The Chandelier trailing stop did not perform particularly well with low return-to-risk scores across the board.
• The moving average stop was not particularly effective either.
• The Parabolic SAR indicator put in some decent scores according to return-to-risk.
• Overall, the 15%, 20%, 25% and Parabolic SAR trailing stops appear to work the best.

Conclusions

In this Premier Bull & Bear Blog Post, we looked at various types of trailing stops and tested them on 11,000 US stocks back to July 1990.

We found that the best trailing stop loss was the “percentage trailing stop” (particularly the 20% and 25%) does a decent job of capturing upward trends in stocks while limiting risk.

Meanwhile, the Chandelier stop and moving average line produced disappointing results and do not provide much reason to use these methods. These findings support my previous experience and it was no surprise to me that the percentage trailing stops performed strongly.

If there is a surprise in these results, it is the decent scores for the Parabolic SAR indicator. This trailing stop looks like it has some merit and can be effective with all three membership levels.

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Stocks vs Gold and Silver; Which was the best investment in the past 30, 50, 80, or 100 years?

These charts compare the performance of the S&P 500, the Dow Jones, Gold, and Silver.

The Dow Jones is a stock index that includes 30 large publicly traded companies based in the United States. It is one of the oldest and most-watched indices in the world.

The S&P 500 consists of 500 large US companies, it is capitalization-weighted, and it captures approximately 80% of available market capitalization. For these reasons, it is more representative of the US stock market than the Dow Jones.

Both versions of these indices are price indices in contrast to total return indices. Therefore, they do not include dividends.

Including dividends leads to a very different picture, which is demonstrated in the charts below:

100 Year Chart

Gold and Silver are not an inflation hedge

As for Gold and Silver, they are often seen as an inflation hedge. However, the data challenges this opinion.  That view stems almost entirely from the very fact that gold used to be money, which could not be printed, and due to the experience of the inflationary 70s when the monetary system changed and the price of gold floated freely.

However, we live now in a completely different monetary system, which essentially explains why Gold and Silver are rather poor short-term inflation hedges. Given the opportunity costs, investors should expect only significant and lasting inflation to drive the prices up. In other words, Gold & Silver may serve as an inflation hedge only when there is relatively high inflation,.

Gold and Silver are a hedge against the Government.

The only time gold has rallied significantly is when the CONFIDENCE in government declines.

That was the case during the post-1976 era for people who saw inflation as running away. That was because of OPEC creating STAGFLATION meaning it was cost-push inflation that eventually converted to demand-push inflation by mid-1979.

I understand that all of these gold-bug analysts have been preaching hyperinflation for decades. The whole Quantitative Easing (QE) was supposed to create $10,000 gold years ago. Here, after 15 years of QE, gold still remains trapped in consolidation overall. Only recently have we seen a bump due do the effects of the attempted move to the Great Reset.

Stocks vs Gold and Silver?

Stocks as a whole, specifically the S&P 500 index, performs much better than Gold or Silver.

More importantly, you will be better diversified and can perform substantially better than Buy & Hold.

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A new housing bubble is clearly visible when the real home price takes into account the effects of inflation and therefore allows for better comparison over time.

The ratio in the chart below divides the Case-Shiller Home Price Index by the Consumer Price Index (CPI). The Case-Shiller Home Price Index seeks to measure the price of all existing single-family housing stock.

Based on the pioneering research of Robert J. Shiller and Karl E. Case the index is generally considered the leading measure of U.S. residential real estate prices and reveals a new housing bubble.

When inflation is high, prices as measured by the CPI increase, and the purchasing power per unit of currency decreases. The Case-Shiller index has a base of Jan 2000=100 while the CPI has a base of 1983=100. Therefore, it is the trend over time that is significant and not the absolute ratio values.

As you can clearly see in the chart, when the ratio gets near .6 a new housing bubble is achieved and real estate prices head down. The higher the ratio, the faster prices they head down.

Just look at the prices and how they have risen…

The charts above and the one below are clearly telling you that a new housing bubble is closing in on us now and is ready to pop.

Do you remember what hit in 2008, because this one will be much larger with sustained reach?

The Case Shiller Index is now 160% higher than in January of 2008. And as history showed us, since 1890, a decline of biblical proportions is coming.

When you add the New Housing Bubble to the Money Supply Chart, to the Market Cap to GDP chart, to the Dividend Yield Ratio, to the Market Cap to GDP Ratio,  to the Screaming S&P500 Dividend Yield, and to the current S&P500 P/E Ratio, you better be prepared for a long-term sustained deep economic crash. This will be a stock market and real estate crash will dwarf 2008.

No one can afford to live through a 7 to 15-year depression, so please prepare now because the warning signs are now clear.

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