As a trend follower the current price of the instrument we are trading is almost irrelevant, explains Ian Murphy of MurphyTrading.com.
The price only matters when it trades at or below our trailing stop, because that is where we will exit the position. It doesn’t matter how high or low the price goes as long as it never pulls back far enough to stop us out.
To illustrate the point, I often blank out the price bars and focus on the trailing stop only. This is also a handy tip if we are struggling to stay in a trend. Looking at the S&P 500 (SPX) we notice the trailing stop (red line on top) is almost back to where it was before the recent pullback. Also, the Pessimism indicator is falling (red line on bottom).
Like it or not, this market is creeping back to bullish territory. Admittedly the upward progress is slow, but it is steady, and the trailing stop is sloping upwards.
PS. A friendly reminder to international traders, US equity markets will be closed today for Memorial Day.
Learn more about Ian Murphy at MurphyTrading.com.