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Chapter 35, Part III. Stop-Loss Orders Based on Volatility. Page 2

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 28, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    Oh, I see. So, we can place our stop beyond the upper or lower border of this range – depending on whether we enter short or long.

    Commander in Pips: Right. Also we do not need to make sophisticated calculations – there are some indicators that could help us. There three of them – Detrended Oscillator (or Momentum instead), Bollinger Bands and ADX. My favorite one is Detrended Oscillator so we will start with it.

    Remember how to use this indicator for estimation of oversold and overbought levels, so you may estimate oversold and overbought price levels that will be broken just occasionally. Here is an example how you can use it. If you sell right from a Fib resistance that coincides with the overbought condition by Detrended oscillator – you will be able to make profit or, at least, stay at breakeven:

    Chart #1 | EUR/USD Daily

    But how to place our stop? Should we use just any value of the oscillator greater than overbought? No. This oscillator is based on daily close prices. Let’s assume that when it hit overbought at some Fib resistance – this is your sell context. To place the stop - all that we need is to build the same oscillator, based on high prices instead of close prices. In this case you will get overbought level for highs. Placing the stop above it will give you high assurance that your stop will only be touched just rarely. This could happen only due something really outstanding. Besides, your stop will not be static – it will be dynamic rather, because the level of overbought will change day by day. The same is true for oversold at support.
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