Question 66—The SafeZone Stop
Answer 4 SafeZone works best during trends and worst during trading ranges.
The purpose of SafeZone is to suppress noise so that the signal of the trend can come through. The noise is that part of the day’s range which protrudes outside of yesterday’s range but only in the direction opposite to the trend. For example, when the trend is up, upside penetrations are normal, while downside penetrations are considered noise. When the trend is down, downside penetrations are normal while upside penetrations are considered noise. SafeZone tracks Average Downside Penetrations during uptrends and Average Upside Penetrations in downtrends and sets up stops outside of the noise level. Like many other methods, it works best during trends but leads to whipsaws during trading ranges.
Get The New Sell and Sell Short: How to Take Profits, Cut Losses, and Benefit from Price Declines, Expanded Second Edition now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.
