Even if I borrowed Merlin from the Tor above I couldn’t conjure up much to say this evening.
We have two open positions: SSO (S&P 500 UP) and UDN (Dollar Index Bearish). Both are trundling along nicely.
Our pending, TBT, which is the DOWN treasuries, has not triggered. If you remember, we are waiting for a close above the nearby resistance.
I should take a moment to explain my position on resistance. When placing a trade, if it is to the upside (which most are for this exercise), I place my protective stop just below support. Now if there is a resistance level close to the trigger point, I put the buy just above the resistance level. A resistance level represents the possibility of supply coming in at that point driving the price back down. It is a more certain trade if we place it just above resistance. It is also likely that there are a bunch of buys just above that level because others have the same concerns as we do. It also means that if our buy is triggered, others will be as well giving the price a nice jolt.
When the trade is in place and it starts to climb (hopefully), it starts pulling the trailing stop up with it. This is where my calculation for how close is too close for resistance. If my price can rise so that the stop is above the initial purchase price before it gets to the resistance level, I am good to place the trade based on our trigger.
Example: resistance is at $20.00. Trade is at $15.00, stop is at $12.50. This means the stop is $2.50 under the market price. When the market price gets to $20.00, our resistance level, the stop is anchored at $ 17.50 which is above our initial trade price. All is good in that case.
If the trade price were $19.00, the stop would be anchored at $17.50 when the price got to $20.00 which is below the initial trade price of $19.00. In this case I would place the trade just above the $20.00 instead of the trigger price of $19.00.
I hope that clarified the stop vs. resistance level a little.
If you have any questions or comments, please drop me a line at: