Stop Loss Revision
I'm going to keep this short, simple, and too the point. When i'm putting on trades these days i'm actually placing my initial stop loss 1-2 pips outside the swing low/high level (100%). The reason is simple. I have had one too many trades come up and test that 87% level, stop me out, close back under the grid and go onto work for profit. But it kicked me out at the worst possible time, it ended up that I wasn't wrong about the trade, but my stop was just a SMIDGE too tight to hold. This can be simply cured by relaxing the initial stop to the swing high or low of your measurement.
Now before you jump up and call FOUL - this changes our Risk:Reward! Let me explain how i'm managing the stops. Yes - worst case i could have a candle just spike straight through my stop and it would hurt. But in my backtesting if price action tests that 87% level I give it ONE more candle to close back inside the grid. If not, i exit the position for what should be roughly the same amount of loss than if I put the stop right at 87%. But i've increased the likelihood of a successful trade by not getting high or low ticked out of a successful trade.
My end trade results have been better than if I was using stops at 87% simply because i've had a number of trades stop me out for max loss just as they go onto work if my stop was at the swing high or low.
Forgive the examples below, they were the first couple I found in the charts. By no means great trade setups really but they illustrate the point fairly well.
Image 1: First move into the area holds the swing low stop. But on the next candle it closes up INTO the grid, but NOT back inside it. Time to say "Yup, i'm wrong" and exit the position. Notice it should be fairly close to where your exit would've been anyway.
Image 2: Notice how price action spiked into what would've been my stop but held the grid. This is the scenario i'm talking about. What would've been a max loss turned into a profitable trade. These scenarios GREATLY outnumber the trades that stop you out right away at a swing high/low and thus, i'm advocating this stop placement to improve the overall results of your trades.
Hope this helps... I'm working on some more material to help confirm grid pullbacks, i'll see if I can find something I really like to show you guys later today or not.
Cheers Folks!
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