The New Sell and Sell Short: How to Take Profits, Cut Losses, and Benefit from Price Declines, Expanded Second Edition

Question 61—A Stop at the Level of the Previous Low

Placing a stop exactly at the level of the previous low can be good for all of the following reasons, except:

1. A downtrend often slows down as it approaches the level of the previous low.

2. If the stock declines to its previous low, it is likely to go even lower.

3. Stocks often accelerate immediately after taking the previous low.

4. Slippage tends to be higher when the stop is at the level of the previous low rather than one tick below that low.