Section 7 discusses stop methodologies. A stop is a price at which a trade might be exited, either in whole or part, or at which increased caution might be exercised. Many investment-focused techniques only emphasize entries, but when trading, taking profit and cutting losses are imperative. Stops help determine points where getting out of a trade might be called for, and they help traders exercise the discipline necessary to follow proper exit strategies.
- Assume you have taken a long trade at $90.00, and the market has just made a high of $95.00. If you have placed a breakeven stop, where would it be?
- If you placed a $10.00 fixed value from entry stop, where would your stop be?
- If you are using a $10.00 fixed value trailing stop, where would your stop be?
- Assume volatility has picked up so you have increased your fixed value trailing stop to $20.00, and the market has just made a high of $115.00, where would your stop be?
QUESTION 7.2 C Weekly with SMAs 3, 21
- If you were using a moving average stop and reverse system (SAR), what additional method could you use to exit prior to a crossover, with only the information on the chart?
- Show an example of when you might have used this stop to exit a long trade. Explain.
- Show an example of when you might have used this stop to exit a short trade. ...