What criterias does one use to determine whether the price movement is one of a turning point to exit or retracement to enter a position? Is anyone using multi-TimeFrame moving averages overlay crosses to create such stops or entry levels? If so, how would you structure such a system? It had been said that trailing stops tend to "stop-out" a trend trader position such that the overall system would have performed better over a longer period if TS weren't there, esp in forex trading. Besides ATR which could be used as a volatility trailing stop but is also lagging, what other ways can be used in the design of adaptive trailing stops. What are soft stops method?
I don't trade stocks anymore but maybe this would be of use to you. I noticed from a visual point of view on daily charts of individual stocks that by the time a 20, 50 and 200 period moving averages cross, the stock will have made 5 or 6 retracements (whether in an uptrend or downtrend) and that by the time that happens, it's often the end of the trend. (At least from what I was seeing when I was looking at hundreds of charts every day.) I suppose you could always use the Parabolic SAR and have fun with the parameters but I have a preference for fixed price targets whether some people may find that eccentric or not. I find it gives you better control of your risk/reward ratio.
Look here, maybe. http://www.elitetrader.com/vb/showthread.php?s=&threadid=176777&perpage=6&pagenumber=2 Also the first two posts of bighog for the multichart dogma or hogma.
So what are some of the soft stop designs for reversal...or can hard stops be better for trend riding systems?
I forgot to mention, if you look at peak and trough analysis (in other words defining an uptrend as a series of higher highs and higher lows and a downtrend as a series of lower highs and lower lows), I think it's a faster signal then looking at 3 moving averages crossover. But every time you have a faster signal, you have the risk of having more false signals. However, you also have the possibility of participating earlier in a large move which makes it easier to have a favorable risk/reward ratio if that's what you want.
A retracement is where an asset has a possibility of pulling back or it might have a hard time breaking through that retracement area. For example a 78% Fibonacci retracement level is difficult for an average market to break through. A turning point is when a stock or underlying asset has had a confirmed reversal in strength. This can be in the form of a -DMI crossing above the ADX line. Here's a strategy I personally use. I use the ADX on the 3 or 6 month charts. I use Fibonacci retracement levels to determine where it could or might pull back if it at all does. When the +DMI crosses above the ADX it is a confirmed signal of an uptrend. When the +DMI crosses above the -DMI it also confirms a short term reversal and it also means that the market will go up I use Fibonacci to determine when, and where the market will pull back. I use ADX for entrance. This is the easiest way to catch headwind of strong or weak trends. Fibonacci helps you find reasonable exit strategies depending on risk appetite. It also makes it easier for you to structure a Loss to Profit ratio for instance you can use the 50% retracement level as an exit. Buy at bottom (0%) and use RSI to make sure it's an oversold bottom. You can put your stop 3% below the bottom or 0% and make your profit target 9% or so near the 50% retracement level. This is fictitious but let's say you bought Bank of America at an oversold level at 12 Bucks you set a stop at 11.60 and the Fibonacci retracement level of 50% was 13.20. Of course to enter this trade you would need either a short term or a long term confirmation that the trend has reversed. e.g. +DMI crossover -DMI with a bottom and slowing volume or slowing volume with a +DMI crossover the ADX line. You would put your trade at a 3:1 win ratio Using Technical indicators. This trade strategy is not recommended if you don't understand how to use it. I just explained how I take advantage of confirmed up trends with a proper win ratio set in place to make or lose money. If every trade using this strategy put a 3:1 win ratio money management strategy you would only have to make money 4 out of 10 times to become profitable. My strategy is a no-brainier the funny thing is, is that it works 8 out of 10 times on average. It works twice as much than it needs to, to make you cash. I'm not even selling you a cheap ass course that most people ask big money for. This is one of many trading systems I have developed on my long journey to become a successful trader.