Managing the Trade: Defense and Offense
Once you are in a trade, your focus shifts to risk management and profit-taking.
1. Setting Your Stop-Loss (The Defensive Play) A confirmed candle close below the central level is one way to exit, being mindful that it can sometimes result in a larger loss. A predefined stop-loss is essential.
The "Buffer Zone": Instead of placing your stop at the central level, you place it a certain percentage below it. This creates a buffer to absorb volatility.
Low Volatility: A 0.5% buffer below the level might be sufficient.
High Volatility (wide level ranges): A 1% buffer gives the trade more room to breathe and respects the current market conditions.
2. Reading Momentum at the Next Level (The Offensive Play) When the price breaks through a resistance level (first, or second) or a support pivot (first, or second), you must assess the quality of the break.
Strong Break (Momentum): A long, solid-bodied candle (like a Belt Hold) breaking through resistance suggests strong buying pressure and the likelihood of continuation.
Weak Break (Indecision/Reversal Warning): If the price breaks the resistance or bullish target mentioned in the Weekly Compass but the candle that follows is a Doji (indecision) or a Shooting Star (reversal signal), it's a yellow flag. This is the market telling you that momentum is fading. However, watching the Bollinger bands and RSI or Stochastic can help you assess if there is just a consolidation because price is not overheated.
Always Confirm with Indicators: No matter the timeframe, check your tools. Did the break of the first resistance occur with the RSI entering overbought territory? Is the price hitting the upper Bollinger Band? These add context to the candle signals.
3. Trailing Your Stop-Loss to Lock in Profits This is the final, crucial step you mentioned. Once the price has successfully broken through a resistance level (e.g., the immediate bullish target for the week) and you've assessed that momentum is strong, you can adjust your exit criteria to protect your gains.
The Adjustment: You can "move up" your stop-loss from its original position (e.g., -1% below the central weekly level) to a new, higher level. A logical new spot would be breakeven or slightly above the central weekly level.
The Logic: By doing this, you have transformed a trade that had risk into one that has zero risk of principal loss. You are now playing with the market's money. Your new goal is to capture further upside toward the next resistance level, while ensuring you give back minimal profit if the trend suddenly reverses. You apply the same risk tolerance (e.g., a 0.5% or 1% buffer) to this new, higher stop-loss level.
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