Pulling out all the Stops

Last week I left off with the SPI200 poised to move strongly to the upside on the latest ABC trade. The market hadn’t yet reached the 50% Milestone for the trade, the most critical level for a Starter Pack trade. I discussed the merits of considering moving stops to entry + commission in this case, as the market crossed 33%. Whether that was the plan, or to leave stops behind Point C until the market reached 50%, the result was no different, we stayed with the trade.

During the week I was speaking with one of our lady traders who excitedly told me about her experience with this trade, as it was her first ‘live’ entry into the market. What a good result indeed, hopefully we have another Supertrader in the making.

This week we can take a look at how traders could have managed their progressive stop movements for this trade. The Real Time Exercises in the Smarter Starter Pack on the SPI and Swiss Franc outline two different approaches one can take for moving progressive stops. In Chart 1 we have the chart of the SPI200, with the data for Friday updated for about half the session.

The SPI style of stop movement has you moving your stops to a level just underneath each of the Pressure Points as they are crossed. For example when the market reaches the 50% level, the trailing stop can be moved up to a level, 10 points underneath this Pressure Point. Subsequently as the market crosses the 75% Milestone, the stop is moved 10 points below this level and so on, as each 25% Milestone is achieved. Using this style of stop movements, profits were taken on this trade at 3387, 10 points below the 75% - yielding a net profit of 56 points or $1,400 per contract.

The Swiss Franc style of stop movement has you trailing your stop a full milestone behind. As the market reaches 50% stops are moved to entry + commission. When the 75% Milestone is crossed, the trailing stop is moved behind the 50% and then profits are taken at 100%. You will notice that I’m using Milestone and Pressure Points interchangeably, because in ABC Trading they are one and the same.

Using this style of stop movement the trade is still live. The market reached the 75% Pressure Point on Tuesday, March 2nd and since then has not been back below the 50% Pressure Point. The benefit of this style of stop movements is that the market can find some resistance at the 75% Pressure Point, come back and retest the 50% Pressure Point, finding support, and then move away again in the direction of the trade. The downside of this style of stop movement is that should the market retreat strongly from the 75% Pressure Point, more unrealised profit is left on the table.

The Swiss Franc approach is used best in a strong trending market, however like most things in trading, what is best one time, may not be the best the next time around. It’s all about the law of averages. I feel like I’ve said that before sometime? May I suggest that anyone with access to the SPI200 data keep an eye on this trade and see what eventuates. If the market does reach the 100% Milestone (3426) and profits are taken, the result will be 95 points or $2,375 per contract, an improvement, on an already excellent result.

Until next week......

Noel Campbell