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Profitable Day and Swing Trading: Using Price / Volume Surges and Pattern Recognition to Catch Big Moves in the Stock Market, + Website by Harry Boxer

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CHAPTER 9

Determining and Setting Stops

Trading is treacherous and difficult at best without protective stops, and likely eventual financial suicide without using them. The most imperative rule of trading is preservation of capital so you will be able to trade another day. Once your capital position is drained dramatically or lost entirely, you are financially, if not mentally, done. The stop-loss, when logically applied, will normally prevent the big, disastrous loss. The most important task, other than stock selection and the determination of your targets and exit points, is where to set your protective stop-loss.

When seeking where to set key stop levels, I have always recommended looking for important chart points of technical support/resistance from previous highs and lows, short- and intermediate-term trend lines, and moving average levels. When more than one of those price points coincide at or near the same levels, it adds credence to and validates the chosen exit strategies and should add to your confidence level in setting those targets/stops.

During the intraday rising channel or trend, it is recommended that your stops be adjusted or raised to reflect the various new intraday support levels being developed as the chart develops. These should be set below minor pullbacks/retests within the trend.

Setting Stops Where Important Price Support Levels Are Violated

In an uptrend or rising channel of any time frame, it’s important to heed any movement that moves below ...

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