I already posted an article about a complete trailing stop function in the blog a short time ago. This time I’ll make it with a different logic with the help of the MFE , the Max Favorable Excursion.

What is the MFE?

The MFE is the maximum of gain a trade has met since its inception price. I can also describe it as: the highest price a long trade has encountered or the lowest one for a short trade.

What we plan here is to use the MFE to exit our trades on price retracement:

Max Favorable Excursion calculation

To save the actual price only if it is lower (for a short trade) or higher (for a long trade), we use the MIN and MAX mathematical function of Probuilder:

//case SHORT order
if shortonmarket then
 MINPRICE = MIN(MINPRICE,close) //saving the MFE of the current trade
endif

//case LONG order
if longonmarket then
 MAXPRICE = MAX(MAXPRICE,close) //saving the MFE of the current trade
endif

That’s it, MFE are saved for future purpose in our trailing stop function.

When not on market, we have to reset the whole variables to not interfere with the new trades that will use them for trailing purpose:

//resetting variables when no trades are on market
if not onmarket then
 MAXPRICE = 0
 MINPRICE = close
endif

MINPRICE is set to current close, because no price can be lower than 0.

A trailing stop based on MFE

Let’s assume we want the trailing stop function to become active only if the MFE has reached 20 points from the entry price of your current trade.

First declare the parameter variable:

//trailing stop
trailingstop = 20

This variable will also be used to determine price retracement from the MFE to close the order.

Next step is to define the price level where to exit the current trade accordingly to the MFE and our trailing stop variable:

//case SHORT order
if shortonmarket then
 MINPRICE = MIN(MINPRICE,close) //saving the MFE of the current trade
 if tradeprice(1)-MINPRICE>=trailingstop*pointsize then //if the MFE is higher than the trailingstop then  
  priceexit = MINPRICE+trailingstop*pointsize //set the exit price at the MFE + trailing stop price level
 endif
endif

//case LONG order
if longonmarket then
 MAXPRICE = MAX(MAXPRICE,close) //saving the MFE of the current trade
 if MAXPRICE-tradeprice(1)>=trailingstop*pointsize then //if the MFE is higher than the trailingstop then
  priceexit = MAXPRICE-trailingstop*pointsize //set the exit price at the MFE - trailing stop price level
 endif
endif

The trades will always exit if the price retrace more or equal to 20 points from the current MFE. The “exitprice” levels are moving accordingly to the MFE at each new candlestick.

Now that the “exitprice” variable is set (the price level where to exit trades), we have to deal with the orders exit, so we build STOP orders among the exit price levels:

//exit on trailing stop price levels
if onmarket and priceexit>0 then
 EXITSHORT AT priceexit STOP
 SELL AT priceexit STOP
endif

The complete code of the MFE trailing stop function

If you have to copy/paste something in your own prorealtime code, this is the whole function for doing it:

//trailing stop
trailingstop = 20

//resetting variables when no trades are on market
if not onmarket then
 MAXPRICE = 0
 MINPRICE = close
 priceexit = 0
endif

//case SHORT order
if shortonmarket then
 MINPRICE = MIN(MINPRICE,close) //saving the MFE of the current trade
 if tradeprice(1)-MINPRICE>=trailingstop*pointsize then //if the MFE is higher than the trailingstop then  
  priceexit = MINPRICE+trailingstop*pointsize //set the exit price at the MFE + trailing stop price level
 endif
endif

//case LONG order
if longonmarket then
 MAXPRICE = MAX(MAXPRICE,close) //saving the MFE of the current trade
 if MAXPRICE-tradeprice(1)>=trailingstop*pointsize then //if the MFE is higher than the trailingstop then
  priceexit = MAXPRICE-trailingstop*pointsize //set the exit price at the MFE - trailing stop price level
 endif
endif

//exit on trailing stop price levels
if onmarket and priceexit>0 then
 EXITSHORT AT priceexit STOP
 SELL AT priceexit STOP
endif

I also attached to this blog article a “basic” EMA cross automated trading system built with this functionality.