How to Use Trailing Stops in Thailand

If you are day trading on the Thai market, and buy a share or warrant, the value of that security should start to increase immediately. If it doesn’t, then the best case scenario is that you were early, and the worst case is that you are wrong. To maintain success as a trader it is essential that you cut your losses early and let your profits run. Trailing stops are a useful tool to help you meet those objectives.

In the past, brokers in Thailand only made trailing stop functionality available to clients with significant funds deposited in their trading accounts. My broker previously required a minimum balance 1 million Thai Baht. But things have recently changed, all that my broker now requires is that the value of my trade is at least 50,000 Baht. This recent change is good news for those traders who have a smaller amount of capital, but still want to avail themselves of the benefits of managing risk with trailing stops.

The Thai Market Already Has a Stop Loss Function

For those who were not aware, the Stock Exchange of Thailand (SET) already has a kind of inbuilt stop loss function that is referred to as a circuit breaker. I wrote about this previously in my article called: Thai Stock Market Price Regulations.

In terms of overall capitalization, the SET is relatively small when compared to markets in Western countries. It is therefore exposed to the risk of manipulation by large inflows, or outflows, of foreign capital. To help address this risk, the SET uses the circuit breaker function to limit the price fluctuation on listed shares to plus or minus 30% of the closing price on the previous day of trading. If the price of a share rallies to its ceiling limit, or falls to its floor limit, the SET will stop processing orders for that security.

But a 30% intraday loss is not very palatable, so let’s have a look at how you can limit potential losses by setting your own trailing stops.

Where to Place Your Stop

Clicking on the right buttons to set up a trailing stop via your Thai trading platform is easy. The tricky part is determining where you are going to place your stop. In simple terms, there are two ways that you can go about this. The most straight forward of these is using what is referred to as a hard stop. That is, you place your stop a certain number of pips below the market price you paid when you entered your trade. Those pips represent the maximum percentage loss you are willing to accept.

The second way that you can determine where to place your trailing stop is by closely studying the price history of your targeted security to identify its support levels. These are the levels where a lot of investors are willing to buy the security and they often appear at the .00 or .50 price points. There are a number of resources available to help you identify price support levels. A candlestick chart is one relevant example:

Thai Shares Beauty Candlestick 231216

Avoid Getting Whipsawed

Thai Shares Trailing Stop WhipsawThe term “whipsawed” comes from the push-pull action used by lumberjacks back in the day when timber was cut by hand. In the nomenclature of day traders, it refers to the situation where, after you enter a trade, the share price falls for a short period, and then suddenly surges upwards into positive territory.

The Thai stock market is often a volatile milieu and it is commonplace to see a share price swing of 5% or more during intraday trading. Due to their leveraged nature, Thai put and call warrants can often move 10% or more. You should always remain mindful of prevailing market volatility when you determine where to place your trailing stop. You want to limit your potential losses, but you also want to avoid getting whipsawed out of your trade.

Mind the Gap

Trailing stops are triggered upon the price of the last trade. “Gap down” is the term used to describe the situation where the bid price of a security falls significantly, but no trades go through to trigger your stop. Consider, for example, that you buy a share for 10 Baht and place your trailing stop at 9 Baht. But the market loses interest and, within the buy-sell spread, the bid price for your share falls to 7 Baht. A trade then goes through at 7 Baht and your trailing stop is triggered. The result is that you incur a loss of 30%, even though you set your stop to limit your loss to 10%.

The best way to avoid a gap down loss is to only trade securities that have consistently healthy intraday trading volumes. Please take care to note however, this does not address the risk of a gap down loss if you hold a position overnight.

Adjusting a Trailing Stop

If you got things right, and the price of the security you bought rallies well into positive territory, you may chose to revisit and tighten up your trailing stop. This ensures that you lock in the bulk of your profits should the market reverse and move against you.

Your comments and feedback on this article are welcomed. If you have a specific question you can visit our forums and post it as a new topic.

If you are currently trading stocks in America, it is my opinion that you are much better off to stop what you are doing and focus your efforts instead on trading Thai shares and warrants. The arguments upon which I base that opinion are listed in detail in my article called: Trade Thai Shares Not American Penny Stocks.