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Here is a little quiz. Its mainly for the benefit of less experienced
traders on this list. Since I devised this quiz myself, its not too
difficult ;-) By the way, this is how many people trade and make simple
mistakes.
For purposes of this quiz, we will assume that the last bar (today)
displayed in a chart is bar 1, the one before that (yesterday's) is bar 2,
the one before that is bar 3, and so on.
There are 3 traders - A, B and C. They all have day jobs and when they come
back home from work, they download the latest data and then look at the
daily charts of their stock holdings on their computers (in Metastock!)
Based on this, they then go to their brokers' websites and place appropriate
orders. e.g. based on the chart, they update their sell-stop price daily.
Lets say all 3 have a long position in a particular stock which has been
climbing steadily. They have only one sell condition - namely, sell when the
stock makes a 20-day low. This is what they do:
Trader A - he chooses the low price of bar 20 (latest bar is bar 1, one
before is bar 2...see above) and selects that as his sell-stop
Trader B - he chooses the low price of bar 19 for his sell-stop
Trader C - he chooses the low price of bar 18 for his sell-stop
Which trader is right? Remember, the sell condition is "sell when the stock
makes a 20-day low". Answer tomorrow.
Shashi
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