![]() ![]() ![]() Identify the timeframe of the parabolic move.So, in market conditions like these, you want to trail your stop loss tightly.ĭon’t give it too much room to breathe because you want to “run” at the first sign of cracks. It’s a matter of time before the market reverse and COLLAPSE. It’s when the market goes parabolic in one straight line (like a rocket taking off). How to trail your stop loss when the market goes “crazy” To avoid it, set your stop loss 1 ATR below the market structure. The market tends to “hunt” stop losses below Support or swing low. If the price closes below it, exit the trade.Set your trailing stop loss below the swing low.This means you can use the swing low to trail your stop loss because if the trend holds, it shouldn’t close below it. You know an uptrend consists of higher highs and lows. The zero indicator method to trail your stop loss This technique is useful when trading a portfolio of stocks with equal weight for each position. This means if ABC stock drops 10% (from its high), you’ll exit the trade. If you buy ABC stock at $100 and have a trailing stop of 10%. It can be 10%, 20%, or whatever you decide. You don’t need a chart to trail your stop loss, here’s how…ĭecide on the trailing stop loss percentage where you’ll exit the trade. You can use 2 ATR to ride the short-term trend, 4 ATR for medium-term trend, and 6 ATR for a long-term trend. To make your life easier, there’s a useful indicator called “Chandelier stops” (from TradingView) which performs this function. If you’re short, then add X ATR from the lows and that’s your trailing stop loss.If you’re long, then minus X ATR from the highs and that’s your trailing stop loss.Decide on the ATR multiple you’ll use (whether it’s 3, 4, 5 etc.).You can use the Average True Range (ATR) indicator to set a volatility based trailing stop. It’s like flushing money down the toilet bowl. Imagine having a 20 pip stop loss when the market swings an average of 200 pips a day. Have you seen traders use a fixed 20 pip trailing stop loss?īecause it doesn’t consider the volatility of the markets. Average True Range indicator: How to use it to enormous big trends You can use the 50-period MA to ride the medium-term trend and the 200-period MA to ride the long-term trend. This means if you want to ride a short-term trend, you can trail your stop loss with a 20-period Moving Average (MA) - and exit your trade if the price closes beyond it. Decide on the type of trend you want to ride.If you want to learn more, go check out The Moving Average Indicator Strategy Guide.īut for now, let’s learn how to use it to trail your stop loss. You can use it to identify the trend, filter out the “noise”, etc. The Moving Average is an indicator that averages out the past prices and shows it as a line on your chart. Next… How to trail your stop loss with Moving Average If you can endure the emotional swings, you’ll eventually catch a huge trend - possibly achieving a 1 to 20 risk to reward or more.Īnd this is something most traders never get to experience because “it doesn’t work” for them. This causes many traders to give up and they’ll claim “it doesn’t work”. Most of the time (even if you use a trailing stop loss), you’ll not ride a trend.Īlso, it’s common to watch your winners turn into losers - as the price moves in your favor and then hit your trailing stop loss. You and I both can’t predict how long a trend will last.īut what you can do is, use a trailing stop loss and take what the market offers you. Now you might be wondering… Why use a trailing stop loss? This means if the price goes higher to $120, your trailing stop loss is at $110 (120–10).Īnd you’ll exit the trade if the price drops to $110. You bought ABC stock for $100 and your trailing stop loss is $10. This is how a trailing stop loss looks like: What is a trailing stop loss and how does it workĪ trailing stop loss is an order that “locks in” profits as the price moves in your favor.Īnd you’ll only exit the trade if the market reverses by X amount.
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