I’ve mentioned numerous times that I never move my stops away from the market. What does that even mean and why do I have that rule in my trading? The image below shows an easy example:
My stop was moved down to 455.36 on the hedges. I run three indicators: Keltner, Donchian and Bollinger, all 21 days on this strategy on the upside indicators. I take the first one that gets hit as my stop buy on the hedges to take them off and let my long portfolio move up with the wind at its back.
However, we just had a war break out in Ukraine. Volatility has increased dramatically in the last 6 days and because of that, the Bollinger Band, which was setting my stop and has a component of volatility engrained in it, actually moved farther away from where the market was trading. That’s logical. More volatility, more room for the market to make normal moves.
But look at where the market was before the war and when things were more normal (if you think anything lately has been “normal”). At that point in time, I gave the current market a normal amount of room for noise in the market. Just because I’m moving forward and the normal room for noise has changed doesn’t change what happened to my stop before the war broke out. So, I don’t change it.
If I were to put on a new position and the noise band had increased, I would indeed allow for the extra room the indicators are telling me is necessary for “normal” noise movement of the market. When you’re in a long term move, markets will get more excited and noise many times will increase as speculation gets more rampant. Noise bands will increase. Do not ever move your stops away from the action at this point. You’ve made it this far through the trade and are profitable. Let the profits run and enjoy the ride!
Tom, this post is so well written and explained. Thanks for sharing your thoughts and experience!