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In Think or Swim, I can link my trailing stop loss to the last, bid, ask/bid, mark, or average price. If my goal is to use a trailing stop loss to minimize losses is one typically better to use than another in a fast moving market? And, would my choice change if my goal were to maximize profits?

In other words, in the minimize loss scenario, I've made some profit, want to keep it, and am not worried if I miss out if the stock goes higher. In the maximize profit scenario, I don't want to miss out on a run that may occur but would be OK if I wind up losing on some trades.

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Look at various time lengths of a bar chart of any liquid stock (say 1, 5 and 10 minute bars). Sometimes the bars are longer indicating a wider range of trading. Sometimes they're narrower.

The ideal stop loss will be lower than the narrow bars, keeping you in. It will be higher the low price of the longer bars, getting you out, especially when there are several bars in sequence going in the same direction (net-net all dropping or all rising). That will maximize profits.

Now tell me, how do you know in advance whether the upcoming range will be large or small. When you figure out what the future will be, you'll have the optimal stop loss order.

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  • I understand what you're saying. But, since the ask is always higher than the bid, for example, if I choose the ask as my price, wouldn't that have a greater chance of my being stopped out of the trade when the stock price decreases?
    – Eric
    Jan 7, 2020 at 14:18
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    Yes, the chance decreases. If you choose a lower price, you're less likely to be stopped out. If the bid is one cent lower than the ask, is that chance of being stopped out significant? My two cents is that you should place stops at a price that you want in (or out). So if you're long, the point of a stop loss is to take you out at price below which you don't wish to continue losing.
    – Bob Baerker
    Jan 8, 2020 at 22:39

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