Protecting Profits With Data In Upper Pane

This is the fourth in a series of articles this week that began with the October 30, 2006 article entitled “Protecting Profits With Trailing Stops”.

There are other ways of setting a stop loss price. The following are a few of the ways that data in upper pane of a price chart are used for setting stop loss and profit protecting stops.

Some traders use a moving average as a stop loss point. As price starts trending towards profit, they stay in the trade until price crosses to the other side of the moving average.

A similar technique is to use a parabolic curve on the price chart as the stop loss point. For this, you have to get a charting service that provides it.

Along the same lines, some traders use a trendline as the stop loss point. As price starts trending towards profit, they stay in the trade until price crosses to the other side of the trendline.

Something different would be using the low of the previous bar as a stop loss to exit long positions and the high of the previous bar as a stop for short positions. For example, let’s say you bought at 1350 and the low of the day was 1345. The initial stop with this method would be just under 1345 (e.g. 1344). Then the stop is changed next day only if the low of the next day’s bar is higher than today’s. This continues until your position is stopped out. Vice versa for short positions.

A similar idea is to use a prior congestion low violation to exit longs and prior congestion high violation to exit shorts. For example, let’s say you bought at 1350. The last time prices went sideways (i.e. formed congestion) before your entry involved a low of 1345. So you set your initial stop slightly under 1345, for example 1344. Then you leave the stop there until prices go up and form a new sideways range at a higher price. Once that new higher congestion area forms and prices again move higher, you raise your stop to just below the new congestion area’s lowest price.

cont'd tomorrow ...

Copyright 2006 Raymond T. Lee. All rights reserved.
Leisurely e-Mini Futures Trading
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