This gut-wrenching market volatility certainly brings one's stop loss policy into sharp focus. For short-term trading systems, we use tight stops, but for our longer-term trend trades, we prefer to give them room to breathe. However, if we give them too much room, we can see our hard-won profits disappearing in one ugly week. Our compromise is to tighten our stops as the amount of profit at risk increases. So, for trades below 40% profit, we have no stops at all, just an exit on the moving average crossover. Above 40%, we start to tighten - so up to 50% profit we have a 15% trailing stop, up to 60% profit a 10% stop, and so on.
Copyright © 2011 Mick Brooks