Just look at that chart above. We were stopped out near the top thanks to our trailing stop. This is why we use stops. If you were caught in this what would you do. Most people stick with it. They console themselves with, it’s bound to come back. Is it? The market doesn’t give a toss for your hopes. It will go where it wants based on many factors. The warning was there. I told you it was. I showed you the divergence that was evident. I probably didn’t emphasise that a divergence doesn’t always appear, but when it does we take action. In that case we tightened our stop.
My normal reaction is to put a simple trendline on my chart when a divergence appears. I explain this in my Basic Trading books. You can have the first one for FREE by clicking: https://charlesgoddard2020-f52a.gr8.com.
Let’s take a look at oil.
The chart above looks as if it wants us to go short. You will not be comfortable with this, so when and if the time comes I will show you an alternative.
Let’s look at the chart of Bitcoin above. You can see at the close of the 25th, the red EMA was crossing the blue EMA – normally a shorting signal. But our system tells us that the blue EMA being above the brown EMA is an uptrend and therefore to go “short” would not only freak many of you out, it would go against our system where are trades need to match the trend.
This downward correction is almost touching the brown EMA. It could be just that – a correction. We will wait until we get a signal before acting on this chart.