Traders need protective stop to lower their capital exposure in a trade. Many ways to place a protective stop for your trading account and the one I present here, is the easiest and most objective trading plan for your stops.
00:00:00 - (duration:00:00:11) - Without a stop, you are risking the future of your trading career. The issue with stops is there are those times that your stop is taken out and the market goes in the direction you intended.
00:00:11 - (duration:00:00:16) - You try to juggle giving the trade room during volatile market conditions and not exceeding your dollar risk amount.What is interesting is your stop is designed to limit your risk amount but the nature of stops can allow you to exceed your risk amount depending on how volatile the market is.
00:00:27 - (duration:00:00:15) - Stops are sitting in the market as limit orders.When triggered, stops turn into market orders.Market orders are filled at the best price.A runaway market can have your stop price filled at a worse price than you originally intended.
00:00:42 - (duration:00:00:08) - If we agree we need a stop in the market, where do we place it? There are a few ways that can help you decide where your stop goes:
00:00:50 - (duration:00:00:12) - - Use an average of the prices - 20 period moving average- Tucked above/below trend lines- Tucked above/below horizontal support/resistance lines- Market structure
00:01:02 - (duration:00:00:09) - An easy way to stick to rules is to have your stop position rules based. Let's base our stop on market structure
00:01:11 - (duration:00:00:04) - A market in a down trend exhibits a pattern of lower lows and lower highs
00:01:15 - (duration:00:00:08) - Once this pattern starts to break down, we can expect at least a correction to this move that may take start to take out the recent highs.
00:01:23 - (duration:00:00:11) - Higher lows are one thing and will give you a heads up to buying at higher prices. It is when the highs start moving up that you are in potential trouble.
00:01:34 - (duration:00:00:24) - Think about this: If price is sitting at a high of 1.3500 and is holding, there is selling pressure (resistance) at that level. Once that price starts to increase, the selling pressure is moving up. When prices rise, the majority buy. More buying happens once swing level highs are taken out. The more highs that are taken out, the more people buy.
00:01:58 - (duration:00:00:15) - Look what happens after a high is tested! What do you think helped cause such a forceful move? Part of this thrust was no doubt a cluster of buy protective stops set as limit orders...triggered into market orders.
00:02:13 - (duration:00:00:29) - This chart shows the progression of the stop placements. This execution is when price breaks a trend line, pulls back to retrace and your initial stop goes above the beginning of the move. The stop moves to above swings in the market after the preceding low is broken.The initial stop is placed above the #1 swing because if price retraces over 100% of that move, it calls into question the entire short scenario.
00:02:42 - (duration:00:00:24) - Why do we wait for the lows to break? Those lows are minor support when formed and if the down move is still in effect, price should break the low. If the low holds, that confirms, at least temporarily, support at that price level. If the stop is moved before the low is broken, you may get taken out of the trade if the market goes into a range.
00:03:06 - (duration:00:00:13) - A simple way to use market structure and the "way the market works", to place your stops and reap the rewards of trailing. Who needs fancy indicators for this?