Supercharge Your Stop Orders! (Part 2)

10/28/2008 12:01 am EST

Focus: STRATEGIES

Timothy Morge

President, MarketGeometry.com

As I pointed out earlier, any traders willing to go short are most likely working limit sell entry orders at or near the prior high. These orders will act as a buffer if price approaches this level. If I am correct, either price will never make it high enough to test this level or the resting limit sell entry orders will slow or stop price's advance, protecting my stop-loss order hiding several dollars above these orders; if I am wrong, I'll be stopped out, and that is a normal part of trading.

chart

Price consolidated a bit and then headed higher. It ran right into the limit sell entry orders in this case, and those orders slowed the advance of price, which failed to make a new high. Several bars later, when some of the traders that had left limit sell orders became frustrated at not being filled, sell orders began to flood the crude oil market. Once prior lows were taken out to the downside, the sell off became swift and steep as traders who were long scrambled to dump their position, and traders who had tried and failed to enter short crude positions at the prior high now looked for areas to get short.

At the close of this wide range bar lower, I canceled my initial stop-loss order and put in a break even stop- loss order. As soon as market structure gave me an opportunity, I would try to box in some profits.

More tomorrow in Part 3.

Timothy Morge

timmorge@gmail.com
www.medianline.com
www.marketgeometry.com

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