How Do I Set Stop Levels?

BarroMetrics Views: How Do I Set Stop Levels?

A subscriber to the Forum-Video service asked how I set my stop levels.  In my weekly video and daily updates on the EURUSD, I said, “stops above 1.3525”. But how far above was his question.

The best way to answer that is to say that I set stops beyond a level, which if reached, would render the reasons for the trade ‘null and void’.  So there are two components to my stop setting:

  1. A reason for taking a trade and
  2. A price plus filter. Usually the filter is 10% or 20% of some range.

Take the current EURUSD trade:

Figure 1 shows a potential 5-d Spring Change in Trend pattern which if valid projects prices to a minimum of 1.3848 (18-day swing line change price). Since the current positions were on the basis of a 5-day trend continuation, a confirmed 5-day Spring would negate the reasons for the trade.

So, the next question is: what has to happen for the Spring to be confirmed?

Answer: A bullish-conviction bar above the Primary Buy Zone at 1.3471.

But, a bullish-conviction is not known until the close. If I were to exit on the close of the bar, my positions could be severely under water. On the other hand, a price-stop could easily shake me out and by the end of the day, not provide the conviction-bar I need to see to say that the Spring is confirmed.

So, I have two stops:

  • A stop that is elected on the close and
  • A price stop which if hit, ought to mean that we’ll see a bullish-conviction bar by day’s end.

In this case, intra-day resistance starts at 1.3525 and ends at 1.3567. So, my stop would be somewhere around those prices plus the filter.

Let’s say, for example, I decided that above 1.3567 would be the place because:

  • It is above the bottom of value (natural resistance) and
  • the start if the directional move down.

I’d place the stop above that price and ‘x’ points as a filter.

2010-03-31-euus-mkrpro.jpg

FIGURE 1 EURUSD

3 thoughts on “How Do I Set Stop Levels?”

  1. Hi Baz

    No significance. The colours alternate weekly. So green bars of one week are followed by purple bars of the next week and so on.

  2. thanks ray for the lovely post
    this was a an educating post on placing stops, could u please also guide as to when do u put ur stop to breakeven and how do u start trailing the same. how much of paper profits do u protect, when do u decide to take partial profits and when do u take complete profits and run.

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