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I've been trying to improve my position trading by using a volatility
indicator to exit long positions primarily to protect profits. I like the
concept of a volatility stop as it is directly linked to the ranging
activity of the security. A number of them have been discussed on this forum
such as the Volatility Stop (Long) by Chande & Kroll, Trading The Trend by
Andrew Abrahams, ATR Trailing Stop by Yngvi Hardarson and the Count Back
Line by Daryl Guppy.
I've attached a chart of a trade I exited today.
Acting on the exit signal given by all the indicators yesterday I exited too
late and gave up about 72% of available profit which is way too high a price
for my liking. By using a lower multiplier of the ATR I would get a tighter
stop but often it can take you out of a trade prematurely. Had I based my
exit on the trendline I would have exited yesterday.
I know it's difficult to counter a gap move down like this one but can
anyone suggest a better method which will keep a good portion of profits yet
not exit trades too early.
regards
Ian Burgoyne
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