Supercharge Your Stop Orders! (Part 3)

10/29/2008 12:01 am EST

Focus: STRATEGIES

Timothy Morge

President, MarketGeometry.com

After a huge $10 wide bar lower, price pulled back up about two and a half dollars a barrel and then consolidated in a trading range for four or five bars before starting to sell off again. Once price made a new low for the move, it confirmed a new swing high at the top of the consolidation. This new low in price is extremely important, because the aggressive sellers who had been working limit sell orders at the prior highs would now move their limit sell entry orders at or near the new swing high.

chart

Because these traders have now lowered their limit sell entry orders, I am now able to move my own break even stop loss order to $2 ½ dollars above the just made swing high—because these new orders will be my new protection! Once again, 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 for a profit.

chart

Once again, price plunges lower and then consolidates. This time, it spikes $2 dollars above the consolidation but then sells off hard again. Once price makes another new low for this move, a new swing high is confirmed. Again, this new low in price is extremely important, because the aggressive sellers that had been working limit sell orders at the prior highs would now move their limit sell entry orders at or near the new swing high.

More tomorrow in Part 4.

Timothy Morge

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

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