Stop Placement Example

As of 06/07/2023

Indus: 33,665 +91.74 +0.3%

Trans: 14,406 +345.09 +2.5%

Utils: 918 +15.80 +1.8%

Nasdaq: 13,105 -171.52 -1.3%

S&P 500: 4,268 -16.33 -0.4%

YTD

+1.6%

+7.6%

-5.1%

+25.2%

+11.1%

Targets Overview: 05/30/2023

33,950 or 32,000 by 06/15/2023

14,600 or 13,350 by 06/15/2023

935 or 880 by 06/15/2023

13,600 or 12,200 by 06/15/2023

4,350 or 4,000 by 06/15/2023

Chart Pattern Indicator:

on 6/1/23

As of 06/07/2023

Indus: 33,665 +91.74 +0.3%

Trans: 14,406 +345.09 +2.5%

Utils: 918 +15.80 +1.8%

Nasdaq: 13,105 -171.52 -1.3%

S&P 500: 4,268 -16.33 -0.4%

YTD

+1.6%

+7.6%

-5.1%

+25.2%

+11.1%

Targets Overview: 05/30/2023

33,950 or 32,000 by 06/15/2023

14,600 or 13,350 by 06/15/2023

935 or 880 by 06/15/2023

13,600 or 12,200 by 06/15/2023

4,350 or 4,000 by 06/15/2023

Chart Pattern Indicator:

on 6/1/23

Bulkowski on Stop Placement: Example

My book, Trading Basics Trading Basics: Evolution of a Trader book.

, pictured on the left, has an entire chapter dedicated to stops, starting on page 41.

If you click on the above link and then buy the book (or anything) while at Amazon.com, the referral will help support this site. Thanks.

Many of you will know to place a stop below a support zone, such as a minor low or region of tight horizontal price movement, but what do you do with the situation pictured in the chart (point B)? Where do you place the stop?

If you noticed the broadening top with a partial decline at A (which happens to rest on a 38% Fibonacci retrace of the move up from the January low) and bought in, stop placement was easy. You just placed it a few pennies below A.

Now that price has climbed to B, placing the stop below a support zone would be foolhardy. The nearest support zone is a small knot of congestion circled in green (if you look closely, you can see a closer one, just above the volatility stop line, but ignore it).

You can use a Fibonacci retracement of the AB move. To do that, take 38% (or 50% or 62% or whatever your favorite number is) of the difference between the two end points and subtract it from the top point: Stop Price = B - (38% x (B - A)). To plug in numbers, we have: 143.67 - (38% x (143.67 - 103.5) or 128.41. I show the approximate level on the chart as a blue line. That stop location (128.41) is well below (nearly 11%) the 143.67 close, so it is not the ideal case.

Another, and perhaps better, method is to use a volatility stop. My free Patternz program will calculate it for you. Refer to my volatility page for the calculation (it amounts to taking the average of a month's worth of high-low ranges, similar to an average true range). The idea behind the stop is to place it far enough away so you do not get stopped out on normal price volatility. I show the volatility stop as a red line.

When I place a stop, I always check the volatility stop setting before deciding where the stop should go. In a case where a straight-line run is occurring, such as in APA, a volatility stop can keep you in the trade longer than using other methods.

Chandelier Stop

Similar to a volatility stop is a chandelier stop. Compute the average true range over the past month, multiply it by 3 and subtract it from the current high price. The result is the stop value. My volatility stop uses the high-low average instead of the ATR with a 2x multiplier but subtracts the result from the daily low.

Bulkowski on Stop Placement: Example

Chandelier Stop

See Also