Continue reading...Ah, the ever present question as to where a trader should place stops. We all encounter this as we are trading. Let’s face it, there is a fine balance in placing a stop that allows you to minimize damage from a bad trade and a stop that is too close to the market which will get shaken out with normal volatility. So what is a trader to do? In past lessons, I have suggested some volatility stops and even using average prices.
Successful traders follow rule-based strategies to minimize emotions. That is exactly what we teach in our courses. This week, I will discuss a rule-based stop method that is based on using the definition of trends to determine when to exit.
An uptrend is a series of higher lows usually accompanied by higher highs in price. A downtrend, in contrast, is a series of lower highs accompanied by lower lows. As traders, we are taught to trade in the direction of the prevailing trend for our selected trading time frame. Logic dictates that if that trend ends, it would...
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