Trailing stop by Michael Voigt

I recently read a book written by Michael Voigt that deals with breakout strategies. It also puts forth a trailing stop strategy for break out traders. The pros of the stop are, that it works in every market and on every time frame. The cons are that it does not work with highly volatile instruments that oscillate a lot.

The basic idea of the trailing stop is to "trail" the price. The stop is basically moved  to the closing price of the previous period. However there are some enhancements added to it.

The most important one, is observing the price movements that show signs of oscillation. Always when the price opens and closes within the area of the previous period, we are talking about an "inside bar". The inside bar has nothing to do with candlestick formations. Often when there is an "inside bar" the price tends to oscillate within the next periods. So the stop should be dragged to the close of the period before the previous.

So here is the OMX Helsinki 25 Index on the daily timeframe. As you can see the stop works well when the market is in a trend and continues to make higher highs and lows.

Potential trade for the year 2014?

Investors celebrated the year 2013 taking home some big profits. The stock index that rose the most was the Venezuelan IBC Index. With 2706,38 points and 474,1 percent it was the ultimate outperformer. After that came the DFM-General index with 99,9 percent. As third came the Argentinian index Merval. The Japanese Nikkei 225 index landed as fourth with 52,7 percent in performance. The Finnish HEX performed 23,1 percent and was 17th.

As it remains a little uncertain whether these indices keep rising, we can take a look elsewhere, e.g. the weekly chart of EUR/PLN spot price.  Massive triangle formation. I am not saying this will happen, but there is a probability. And that is what trading is based on: Probabilities.

Stocks for 2014

As Gold´s price keeps declining, investors move more and more their money into stocks. That is why it is a good time to make some stock picks for 2014.

Since AAPL suffered the biggest price decline in 2012 it seems that it is now in a steady trend making higher highs and lows.  Analyst speculate it to climb to 700 in the next 12 to 18 months. There is also a rumor that the company will be launching "wearable technology", something similar to Samsungs products. 

At the beginning of November Wall Marts (WMT) Stock price broke out of a bullish flag formation reaching an all-time high of 81,37. After that the stock consolidated to 77,80 which is significant and offers a great point to place the stop. So now we are waiting for a breakout over the A-TH.

Let´s wait that Nokia´s (NOK1V) stock will break over 6,0. Analysts are estimating Nokia to give out a dividend of 0,4 euros. 

Observing A Trend From A Market Technicians Viewpoint

There are many books about technical analysis out there, that are full of chart setups and candle stick analyses, but what they usually don´t have, is the explanation of traders behavior in a specific market situation. A successful daytrader, knows where the majority of traders have placed their stop orders and limit orders. That information is enough to make a successful trade, since where the orders are placed there will usually emerge a larger movement.

Lets have a look at the SP500 daily chart.

The blue dotline indicates the way of the trend. In general, trendfollowers usually set their stops above or below the last high or low, depending on the position of course. So if we look at the first 1,2,3 formation, we can see that when the price hits the significant high 2 the price breaks out. So the price reached above the last high and triggered stop orders from those who were positioned short. So short sellers have to buy the security and sometimes they even turn their position, which means they have to buy twice as much. And also many traders have their buy orders placed above the line.That is why often, but definitely not always, there comes movement into the market when crossing a significant high or low.  

That explains also why a breakout of a triangle formation has so much volume. The price oscillates up and down, but not making higher highs or lower lows. As the range of the movement gets smaller and smaller, eventually the price breaks out of the formation skyrocketing or falling. The traders move their sell and buy orders outside of the triangle and when the price breaks the formation, it triggers the bundle of orders. 

S&P 500 in a massive correction movement

The S&P 500 is clearly correcting now it´s rally trough October. My estimated target would be 1700, and would place my stops trailing on the daily time frame. The index broke already yesterday a significant level of 1751. In mid December, we can speculate for an year-end rally.

S&P 500 still bullish despite US Federal Government shutdown

The S&P 500 seems to be still bullish despite the US government is shutting down. The index is currently trading in historical highs and keeps being bullish as long as previous lows will not be broken and new highs will be reached.

The red lines indicate where the stops should be placed.

A little bit about goal setting ..

I think it is essential for every trader to set goals in life. I read recently the popular book "Think And Grow Rich" written by Napoleon Hill. Napoleon Hill was given the task to examine the most successful people, by that time the most wealthy man Andrew Carnegie. The reason Andrew gave Napoleon the task, was that he had one of the qualities that successful people have, "do more than people expect from you". That means that in every task, he works harder than he is paid for. The books title does not refer only to accumulate materialistic riches, but also how to get a life with love, friends, no fear of failure, living healthy and being confident.

The basic principles to success are:

1. Set one main goal in life
2. Set secondary goals that lead to the main goal
3. Program yourself into success mode

The principle is to program your subconscious mind in accepting yourself as a success. You have to dream every day about your main goal and imagine yourself as you are when you have obtained it. If you want to be a professional mutual fund manager, going every day to work in a suit driving a Mercedes, you have to imagine yourself every day as you would already live like that. Surround yourself with successful persons not with pessimists. And also create your own master mind group, with people that have similar goals and want to succeed. Share your knowledge with them and in exchange you will get knowledge from them.

One of my favorite motivational speakers: Brian Tracy