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| From the Desk of S&P Trader Larry Levin, President of Trading Advantage LLC | ||||||
     Secret Trading Tip #9 The Double Stop Reversal | ||||||
| Stop orders are often used to try to protect profits. Take the stop order to another dimension and use it to reverse your position and open another trading possibility! When you place a stop order, it is only activated if the market trades at or through the stop price. These stop prices are often key technical levels. If the market is breaking an important technical barrier, why not double the order and try to play the movement? Daytraders can use this technique to play trading sessions with wide ranges. Position traders can use the double stop in wider parameters, and target areas of historic support or resistance. Let's run the typical stop order scenario. A trader puts in an order to buy a contract. They are now long. They place a stop loss order below their entry price, usually at a key technical level. If the market moves higher, they are seeing a gain on their position. If the market moves too low, it will trigger their stop and close the position with a sell order. If the sell off in the market was triggered by bad news or it was the result of a trend reversal, what better moment could there be to reverse a position? This sets up a new potential trade opportunity if that stop level was based on a key technical area, rather than a simple point-based risk level. Run the same scene with double the stop order. When the market moved lower and triggered the sell stop, if it was two sells instead of one, the trader would be short one contract, positioned to play any continuing downside move. When a market breaks a key technical level, it might be signaling the trend shift and indicating that the opposite position should be played due to the momentum likely to carry forward the market from the technical break. The use of stop loss or contingent orders may not limit losses. Certain market conditions may make it difficult or impossible to execute such orders. Prices may gap through the stop price. Take a look at this example of a double stop in action: | ||||||
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| Past performance is not necessarily indicative of future results. When you place your new stop after the double stop is triggered, look for those areas of previous support to become the new levels of resistance and vice versa. Use these as a possible guide for your new order placement. Aim just outside these levels so there is sufficient room in case the market retests that area. Double stops can be used in moments when a trend might come to an end or the market may be poised for a reversal, like those that follow key economic reports. Using a double stop order is a way to take advantage of the market sentiment that is taking out your original position. It is just one way to try to play a breakout or reversal. This is a technique that can be employed when unknown factors come out into the light or when the rumor becomes news and is contrary to market expectations. Best Trades to you, | ||||||
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| The use of stop loss or contingent orders may not limit losses. Certain market conditions may make it difficult or impossible to execute such orders. Prices may gap through the stop price. Did you like this trading tip? Receive 1 FREE trading tip per week from Larry Levin by clicking: Larry's Free Trading Tip Newsletter In an effort to comply with all applicable rules and regulations please be so kind and read the disclaimer below: Risk Disclosure Statement - Past performance is not necessarily indicative of future results. The risk of loss in trading commodity futures contracts can be substantial. You should, therefore, carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should be aware of the following points: (1) You may sustain a total loss of the funds that you deposit with your broker to establish or maintain a position in the commodity futures market, and you may incur losses beyond these amounts. If the market moves against your position, you may be called upon by your broker to deposit a substantial amount of additional margin funds, on short notice, in order to maintain your position. If you do not provide the required funds within the time required by your broker, your position may be liquidated at a loss, and you will be liable for any resulting deficit in your account. (2) Under certain market conditions, you may find it difficult or impossible to liquidate a position. This can occur, for example, when the market reaches a daily price fluctuation limit ("limit move"). (3) Placing contingent orders, such as "stop-loss" or "stop-limit" orders, will not necessarily limit your losses to the intended amounts, since market conditions on the exchange where the order is placed may make it impossible to execute such orders. (4) All futures positions involve risk, and a "spread" position may not be less risky than an outright "long" or "short" position. (5) The high degree of leverage (gearing) that is often obtainable in futures trading because of the small margin requirements can work against you as well as for you. Leverage (gearing) can lead to large losses as well as gains. (6) You should consult your broker concerning the nature of the protections available to safeguard funds or property deposited for your account. ALL OF THE POINTS NOTED ABOVE APPLY TO ALL FUTURES TRADING WHETHER FOREIGN OR DOMESTIC. IN ADDITION, IF YOU ARE CONTEMPLATING TRADING FOREIGN FUTURES OR OPTIONS CONTRACTS, YOU SHOULD BE AWARE OF THE FOLLOWING ADDITIONAL RISKS: (7) Foreign futures transactions involve executing and clearing trades on a foreign exchange. This is the case even if the foreign exchange is formally "linked" to a domestic exchange, whereby a trade executed on one exchange liquidates or establishes a position on the other exchange. No domestic organization regulates the activities of a foreign exchange, including the execution, delivery, and clearing of transactions on such an exchange, and no domestic regulator has the power to compel enforcement of the rules of the foreign exchange or the laws of the foreign country. Moreover, such laws or regulations will vary depending on the foreign country in which the transaction occurs. For these reasons, customers who trade on foreign exchanges may not be afforded certain of the protections which apply to domestic transactions, including the right to use domestic alternative dispute resolution procedures. In particular, funds received from customers to margin foreign futures transactions may not be provided the same protections as funds received to margin futures transactions on domestic exchanges. Before you trade, you should familiarize yourself with the foreign rules which will apply to your particular transaction. (8) Finally, you should be aware that the price of any foreign futures or option contract and, therefore, the potential profit and loss resulting there from, may be affected by any fluctuation in the foreign exchange rate between the time the order is placed and the foreign futures contract is liquidated or the foreign option contract is liquidated or exercised. THIS BRIEF STATEMENT CANNOT, OF COURSE, DISCLOSE ALL THE RISKS AND OTHER ASPECTS OF THE COMMODITY MARKETS |
This email was sent to ignoble.experiment@arconati.us by Trading Advantage
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