SQUARING OFF ROUND NUMBERS
When using minor highs or minor lows as stop locations, do not place the stop right at the price of the peak or valley. Instead, add a few cents to the peak and subtract a few cents from the valley and place a stop there. In too many cases, price will exactly match a prior peak or valley and you do not want to be stopped out in that situation.
For example, if the peak is at 11.00, I will cover a short at 11.07. If the valley is at 20.00, I will place a stop at 19.93. I want to avoid round numbers (numbers ending in zero, especially double zero) since novice traders will place their buy or sell orders there. I want to be far enough away from those prices such that their orders give the stock every opportunity to turn before it hits my stop.
- Avoid placing stops at numbers ending in zero.
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