V.7:11 (408-410): Setting stops: A new approach by John Ehlers

Setting stops — a new approach by John Ehlers

The cliche in golf is "drive for show, but putt for dough." The analogy in technical trading is that the ability to pick entry points is highly focused, but scant attention is paid to how to exit a trade. This is unfortunate, because skillfully selected exit points can often make a large difference between overall profit and loss.

There are, of course, several exit strategies in common usage. One is to exit with a predefined profit or loss. Another is J. Welles Wilder's parabolic stop-and-reverse or SAR (see related article in this issue). I use an exit strategy based on a following stop in my EPOCH trading software. The exit point also can be used to establish stop-and-reverse positions if you desire to follow the contract in both long and short positions.