One of the few things we have some control over in the markets is in defining our risk. We don’t want to use some out of touch arbitrary stop method to define risk. There are no perfect formulas but if we can develop an understanding of volatility and market structure, we can come up with logical places to place stops. In this video, I show 2 simple methods for calculating stops using swings and ATR, and these are based on price flow itself and adapt to its everchanging volatility. Traders seem to devote all their time to entries but we should study everything we can about stops because a well thought out stop can also be an entry idea. I will often look for where I might place a solid stop in a market and then use that for an entry.
Keep in mind that when I use the word “follow” I’m not just talking about trailing along behind a market. The word is describing an experience of setting yourself aside and learning from what they are doing. Using a simple swing framework, we learned a few ways we could trade the S&P E-Mini and AUD/USD that we were following. This month we will follow Soybean futures which have been running up smoothly and USD/CAD which has been running down smoothly.