Skip to main content
Track Trailing stop
22 / 36
Search the archiveLibrary
Library

2014issue C0830-35

Stop distance, size, and trailing swing invalidation

Protective stops are treated as required even when a trend looks strong. Invalidation sits at support or resistance, position size is reduced when that distance makes risk too large, and a trailing stop may replace the initial stop only after a new higher low or lower high is printed.

  • Protective stops are treated as required even when a trend looks strong, because losses without a stop are described as likely to expand.
  • A farther stop is more likely to survive noise while increasing the loss if hit; a closer stop is triggered more often, so position size is reduced when support or resistance distance makes risk too large.
  • After price moves in favor, the initial invalidation is updated and a trailing stop is moved to the most recent higher low or, in a downtrend, the most recent lower high.
  • If conditions change, the plan is to exit without waiting for the stop; a Fibonacci objective can serve as a planned exit reference instead of waiting for the stop to be hit.
Entries in this reading3 entries
Current trackTrailing stop87 readingsFibonacci retracement97 readingsStop-loss order144 readings

A protective stop stays required

Protective stops are treated as required even when a trend looks strong, because losses without a stop are described as likely to expand. A stop-loss is a pre-chosen exit that bounds the loss if price reaches a selected invalidation.

Stop distance and position size

A farther stop is framed as more likely to survive noise while increasing the loss if hit. A closer stop is framed as being triggered more often.

Stops are located at support or resistance, and position size is reduced when that distance makes risk too large. A support-resistance stop keeps invalidation tied to nearby structure rather than to an arbitrary tick count.

Initial invalidation after the break

After a bullish break of a downward channel, the initial stop is placed below the low that started the up move. That first placement is the initial invalidation: the first stop, placed beyond the start of the swing the trade is based on.

In a downtrend of lower highs and lower lows, the initial stop is placed above the start of the down move.

When a trailing stop may replace the first stop

Once price has moved in favor, the initial risk setting is updated and a trailing stop is moved to the most recent higher low. In the downtrend, the stop is later trailed to the most recent lower high.

A trailing stop is a stop moved only after price has already advanced, typically to the latest confirmed swing extreme. Editorial note: the trail is not treated as a substitute for the first stop until that new higher low or lower high is printed.

A planned Fibonacci exit and the signal bar

In the illustrated long, the 261.8 percent Fibonacci level is used as a planned exit reference instead of waiting for the stop to be hit. A Fibonacci retracement is used here as a measured Fibonacci price objective once the position is open.

For a price-action bull reversal the stop may sit a few ticks below the signal bar; for a bear reversal, a few ticks above. If that bar is large, the stop may sit beyond its midpoint.

Very small stops based only on price action are described as being triggered with high frequency if they remain visible to the market.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
22 of 36 in the Trailing stop track
201419-21 pp.Next on Trailing stopLong-only RSI pullback, reversal-bar-entry, and staged-trail constructionLongs are admitted only while price holds above the 200-period exponential moving average trend-gate. The two-period rsi-reset is an oversold precondition, not the entry.
All readings on this track · 36 readings
  1. 1988Half-day bars, a midpoint gate, and a bar-based trail
  2. 1989Packaging two-bar reversals into testable entry and exit rules
  3. 1989Weekly high and low averages as stop-and-reverse levels
  4. 1991Constant false-alarm rate for dominant-cycle stops
  5. 1992Tick-index extremes as continuation and turn hypotheses
  6. 1993Constructing layered stops from equity and structure
  7. 1993Filter crossovers with moving-average slope
  8. 1993Precommit stop bounds from equity and structure
  9. 1998Evaluating a trendline barrier that can only tighten a capped stop
  10. 1999Constructing common-number support and resistance
  11. 2001Four-step opening-hour bias and trailing stops
  12. 2004Make the trading system the star
  13. 2005A beginner stock case: stop, trail, and the pre-trade checklist
  14. 2006Sell stops that trail support after the buy
  15. 2006Treat a wave-3 label as unfunded until the stop rails are written
  16. 2008Test medium-term divergence with a trendline break and a trailing stop
  17. 2010Rule-based forex entry, stop and trail
  18. 2012Precommitting stops when one currency range templates another
  19. 2012Cat-ears as a downtrend continuation hypothesis
  20. 2013Three-average swing entry and a trailing average exit
  21. 2014Construct a dual quotient-copy trend filter under a frequency roof
  22. 2014Stop distance, size, and trailing swing invalidation
  23. 2014Long-only RSI pullback, reversal-bar-entry, and staged-trail construction
  24. 2015Dual-average regime, trigger candle, and trail as one daily script
  25. 2015Three-gate trend system: filter, trigger, and trailing stop
  26. 2016Construct HHLLS crossover and breakout entry rules
  27. 2017An appointment-trade around a scheduled political close
  28. 2017Golden-cross breakout rules for a swing entry
  29. 2017Breakout confirmation above round numbers, with nines as sell shelves
  30. 2018Classify diamond geometry before the breakout
  31. 2019When trails and stops betray the support read
  32. 2019One-triggers-the-other pairs for preplanned swing entries
  33. 2019One-triggers-the-other orders for a breakout and its stop
  34. 2019When the second decision unbounds planned risk
  35. 2020Last-Hour Breakout With a Same-Session Flatten
  36. 2020Couple the slow period to stop-loss and trailing-stop settings
By fieldStops and loss limits40 readingsBy year201489 readings
All 87 readings tagged Trailing stop
Also on Trailing stop5 readings
2006Treat a wave-3 label as unfunded until the stop rails are written2012Cat-ears as a downtrend continuation hypothesis2012A weekly-close test of impulse, correction, and the 61.8% stop2017An appointment-trade around a scheduled political close1986The stop, the size, and the acceptable loss as one pre-entry gate