Letters To S&C by Technical Analysis, Inc.
PUTTING A STOP TO IT
Very interesting article by David Garrard in the May 2011 S&C about the use of stops. Preservation of capital is an important element in any trade.
After reading the article, I had several points that did not seem to be covered:
1. Regarding Figure 2, how were the tight, medium and loose stops calculated? The author makes reference to “dynamic volatility and an evaluation of standard deviations” but there are no hints on how this number is calculated.
2. For the 14-day Atr, how does the author suggest applying this number to the stock price? Do I use a multiple of the Atr like 2 or 2.5? Do I simply calculate the 14-day Atr daily and apply it to each different closing price? Another way to look at it is, how frequently do I calculate and change the Atr?
Loved the article but the actual application is vague. Thank you for a fantastic publication.