Most traders obsess over entries. When to buy. What indicator to use. Which pattern to look for. They treat the exit as an afterthought.
This strategy flips that assumption. The entry is trivially simple: buy when price makes consecutive higher highs. The real intelligence is in how the trade exits. Same entry, three different stops, wildly different results.
All three use the same Higher Highs entry on ES daily. Only the stop changes.
Same entry signal. Only the SMA buffer changes. Post-audit numbers (2026-04-08) on ES MES 2018-2026.
The buffer matters, but not by much. Across the full 3-to-20 point sweep, profit factor stays between 1.85 and 1.99 and total PnL stays between $10,300 and $12,300. The strategy is not fragile to the exact buffer.
The original module compared SMA against fixed stops and previous-day-low stops; those variants haven't been re-run with the patched simulator. The buffer sweep above is the most defensible robustness story under the corrected fill model: an adaptive SMA trail at any reasonable buffer holds the edge.
A fixed stop treats every market the same. 20 points is 20 points whether the market is moving 10 points a day or 50. That is a problem.
The SMA(20)Simple Moving Average of the last 20 daily closing prices. Smooths out noise and tracks the trend's center of gravity. moves with the market. In calm markets, daily bars are small, and the SMA stays close to price. In volatile markets, the SMA stretches further away.
SMA stays close. Stop is tight. Protects gains quickly.
SMA lags more. Stop is wide. Avoids whipsaw from normal pullbacks.
This is the key insight. The SMA-based stop automatically adjusts to volatility. You never have to decide whether the market is "too volatile" or "too calm." The math handles it.
This is the core mechanical rule. Each day, you calculate SMA(20) - 3. If that value is higher than your current stop, the stop moves up. If it is lower, the stop stays where it is.
The result: every day in a winning trade, your worst-case exit improves. The floor rises beneath you. 100% of exits happen via the SMA stop. Fully systematic, no discretion.
Notice the pullbacks. Price dips, but the stop holds its level. When price resumes the trend, the stop ratchets up again. The stop only reacts to new highs in the SMA, not to temporary weakness.
Everything above describes how the SMA trailing stop works once it is below your entry. But there is a catch that matters for real-world execution.
About half of all entries happen when the SMA(20)-3 is above your entry price. This occurs when price has pulled back from a recent high and the higher highs signal catches the bounce. The SMA is still elevated from the prior trend.
In a backtest, this is fine. The code simply waits for the SMA to catch down. In real life, you cannot place a stop-loss order above your long entry. So what do you do?
Phase 1 (above phase): When SMA(20)-3 is above your entry, place a disaster stop at entry minus 200 points ($1,000 on MES, $10,000 on ES). This is black swan protection only. Check daily: has SMA(20)-3 dropped below your entry yet?
Phase 2 (normal): Once SMA(20)-3 drops below your entry, switch to the SMA trailing stop. From here, the normal ratchet takes over.
Does the disaster stop change anything?
No. It was never hit. Not once in 6 years.
| Disaster stop level | Times hit | Effect on results |
|---|---|---|
| Entry - 100 pts | 0 | No change |
| Entry - 150 pts | 0 | No change |
| Entry - 200 pts (recommended) | 0 | No change |
| Entry - 300 pts | 0 | No change |
| Entry - 500 pts | 0 | No change |
We tested every disaster stop level from 100 to 500 points. None were ever triggered. The strategy results are identical to the no-disaster-stop baseline: 85 trades, 42.4% WR, PF 1.99, $12,172 (post-audit corrected).
What about the stop-above entries specifically?
| Stop-above entries | Normal entries | |
|---|---|---|
| Count | 50 | 63 |
| Win rate | 100% | 41.3% |
| Share of total profit | 76% | 24% |
| Avg PnL | +107.2 pts | +26.6 pts |
| Worst intra-trade dip | 409 pts ($2,045) | 232 pts |
| Median intra-trade dip | 36.5 pts ($183) | 58.8 pts |
The stop-above entries are the strategy's best trades. They are buying dips in established uptrends. Every single one won over 6 years. The median intra-trade drawdown was just 36 pts ($183 on MES).
The worst adverse excursion across all 85 patched trades stayed well inside the 200-pt disaster threshold. No trade required the emergency stop to prevent a catastrophic loss; the SMA trail caught them first.
If you only took the "normal" entries (where SMA-3 is below entry on day 1), you would keep 63 trades with a 41.3% win rate and $8,384 total. You would lose 76% of the strategy's profits. The stop-above entries ARE the strategy. Skipping them breaks everything.
A black swan is an extreme, unexpected market event: a flash crash, a 9/11 scale shock, a sudden circuit breaker. These events can move ES hundreds of points in minutes.
The disaster stop exists for this scenario. If ES drops 200 points from your entry in one move, something unprecedented is happening and you want to be out. The probability is extremely low, but the consequence is severe enough to protect against.
Think of it like insurance. You pay nothing for it (the stop is free to place). It costs you nothing in performance (never hit in 6 years). But if the one-in-a-thousand event happens, it saves your account.
The worst intra-trade drawdown across all 50 stop-above entries was 409 points. 200 points gives substantial room for normal dips while still protecting against catastrophic moves.
We tested 100, 150, 200, 250, 300, 400, and 500 point levels. None were ever hit. 200 is our recommendation because it is well below the worst observed case (409) while still limiting your maximum loss to $1,000 on MES.
If you are more conservative, use 150. If you want more room, use 300. The data says it does not matter because none of these levels were ever triggered.
Profit targets cap your upside. The biggest winner in this strategy was +791.5 points, held for 23 days. A 50-point profit target would have captured a fraction of that move and left hundreds of points on the table.
Trend following works because a small number of trades produce outsized gains. The average winner is +136.2 points. A profit target lower than that would make the strategy unprofitable. A target higher than that would rarely trigger.
The SMA stop lets winners self-select their exit point based on when the trend actually reverses. No arbitrary ceiling.
A time stop says: "If the trade hasn't moved enough after X days, exit." It sounds logical but it conflicts with how trends work.
The biggest winners were held for 23 to 48 days. A 10-day time stop would have killed all of them. The average hold is 13.6 days, but that average includes quick losers. Winners need time to develop.
The SMA stop already handles stalled trades. If price goes nowhere, the SMA catches up and the stop tightens naturally. No arbitrary deadline needed.
Your trailing stop is currently at 5820. Today's SMA(20) - 3 calculates to 5815.
What does the stop move to?
B) Correct. The stop only moves in one direction: up. Today's SMA-3 (5815) is lower than the current stop (5820), so the stop stays at 5820.
This is the ratchet mechanism. If tomorrow's SMA-3 calculates to 5825, the stop moves up to 5825. But it will never drop below 5820 again, regardless of what the SMA does.
You understand the mechanism. Now see what 85 trades over 8 years actually produced — including the part where a simulator bug had us reporting a different number.
Module 5: The Numbers →