We have had many discussions on that... The Rules require a CLOSE below the Swing Low or Support, to avoid whipsaws.
The Market Makers took the stock down to Flush the Stops (probably so they could buy).
Many times the Market Maker can push the Stop BELOW Support during the day to FLUSH out the weak Hands.
Our friend Kevin worked on Using Sell Stops and also Avoid Intra-day Whipsaws:
The Above the Green Line model exit strategy is based on an initial exit level, the state of the slow stochastic indicator, and the 10 day moving average. There are two ways to implement the exit strategy.
1. The first is focused on where the stock or ETF is going to close for the day and requires the ability to monitor the markets and enter orders during the day. We will call this the Active Monitoring method.
2. The second uses good-until-canceled stop orders and does not require intra-day monitoring. We will this the Set It and Forget It method.
Note: All entries, exits, and returns detailed on our open and closed positions lists are based on the active monitoring model.
The active monitoring model makes trade decision based on where the instrument is going to close in relationship to a few different criteria. It entails setting alerts for stop levels instead of actual stop orders. The reasoning for this is that market makers will often ‘run the stops.’ When this happens the instrument price will be driven down to take out stops and then ‘recover.’ Below are the rules.
1. When an AGL trigger occurs, the instrument is purchased at the close and an alert is set for the previous swing low.
2. Once the Slow Stoch is greater than 50, the alert is moved to the purchase price.
3. Once the Slow Stoch is greater than 80, the alert can be moved to the 10 day moving average.
In practice, it looks like this:
1. The alert fires
2. The instrument is monitored until near the close of business.
3. If the price remains below the alert level, the position is closed. If it rises above, the alert level, the alert is reset for the next trading session.
4. Rinse and repeat.
Set It and Forget It
The set it and forget it model uses actual stop orders placed with your broker. If you do not have the ability or desire to monitor the markets during the day and place trades, this model is for you. However, it is susceptible to market makers running the stops as indicated above. What does this mean? It means that sometimes you will be closed out of a position that the Active Monitoring model would not have. We can try to mitigate this a little by placing our stops a little looser than they might be otherwise, but this has not been tested rigorously at this time. Below are the rules.
1. When an AGL trigger occurs, the instrument is purchased at the close or first thing next session and a good-until-canceled stop order is entered just below the previous swing low.
2. Once the Slow Stock is greater than 50, the stop is moved to the purchase price.
3. Once the Slow Stock is greater than 80, the stop is moved to the 10 day moving average and updated daily.
In practice, there really isn’t anything that the traders has to do other than adjust stops. When the stop criteria is met, the instrument will be sold automatically.
Good stuff, Kevin!
Good trading, and tell your friends!