How I Set Stops and Profit Targets (Part 3)

06/10/2009 12:01 am EST

Focus: STRATEGIES

Timothy Morge

President, MarketGeometry.com

When I began charting the currencies during the live session, I opened a new 20-minute chart of the Canadian dollar and found that my limit sell order had been executed, getting me short the US dollar against the Canadian dollar at 1.0945. And more important, the trade was going quite well! I still had more than 30 minutes of live charting to present and price was beginning to sell off. I couldn't simply watch my new intraday position while several hundred traders watching live waited for me to move to the next market. I showed the live Internet audience the new position and then while they watched, I cancelled my initial stop loss order and moved my stop order to break even.

chart
Click to Enlarge

After charting commodities and beginning to chart the stock index futures, I told everyone online that I wanted to peek at my new intraday Canadian dollar position. The US dollar had plummeted and the position was near my profit order at 1.0794. I briefly considered just going to the market and taking my profit, but instead, I cancelled my break even order and changed it to a stop profit order ten ticks above the swing high at 1.0881. Then I went back to charting the stock index futures, eager to finish the live charting session and get back to trading! Let's see what the market did while I finished up my charting session:

chart
Click to Enlarge

After I finished my charting session, I pulled up a Canadian dollar chart and found that the US dollar had mounted a nice rally. Price had just missed filling my profit order and had now climbed back against me about 50 pips. I watched as price got closer and closer to my profit stop at 1.0881 and at one point, I was certain my order was going to be filled there. Instead, price came within two pips of my stop profit order, turned on a dime and headed right back down. Four bars later, price re-tested the prior lows and my profit order at 1.0794 was filled for a nice profit of 151 pips.
There are three keys to this trade:

  1. There are lots of “squiggles” to catch, even in a near vertically-trending market.
  2. Wait for price to play its cards before putting your orders in the market.
  3. Hide your stop loss or stop profit order behind prior swing highs or prior swing lows. Once you start using market structure to your advantage, you'll be surprised how many times your stop orders survive by a few pips!

 

I wish you all good trading! Read Part 1 | Read Part 2

Timothy Morge

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

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