Where to place your stop loss-a close above theThe big question in every trader mind, where to place my STP loss. most common trading strategy calls to place the stop loss above a SZ (Supply zone) or Below a DZ (Demand Zone), right that seems easy but its not. ask any trader & he will recount stories of price violating the SZ, & the stop loss is triggered the loss is carried (hopefully small) only to have the price reverse fortune.
This is exactly what occurred in this short trade on NYSE:GM (General Motors); on the left hand side we have the long-term chart (W) & on the right hand side we have the trade chart(D).
The Long-term chart is clearly in downtrend. the price came into the Lower High of the (W) downtrend. a short was opened @39.20 with a stop loss above the LH of the (W) downtrend slightly above @41.00 many odds are in the favour of taking this trade.
What is interesting, on the right hand side, (D) chart, the price violated the LH supply zone & closed above the supply zone (The red circle) ; my trade plan calls to close a trade after a candle stick
* Violates a Supply zone by 10%
* candle stick closes above the SZ
Both conditions were met here, yet I did not close the trade & waited for a confirmation. yes i violated my own trade plan. Trading is fluid & my trade plan is ever changing. I closed the short today @32 mark. No permanent was made to my trade plan. but I took note of a price violating the SZ by over 10% & closing above the SZ but still the SZ held & the Short worked out.
