How Successful Traders Use Indicators to Place Stops 
How Successful Traders Use Indicators to Place Stops
by InformedTrades
Video Lecture 44 of 77
Not yet rated
Views: 390
Date Added: May 7, 2017

Lecture Description

Practice using stops with a free demo trading account here:

A lesson on how to incorporate the use of technical indicators when placing stops in the forex, futures, and stock market.

In our last lesson we learned how many successful traders look for entry opportunities which allow them to set their stop so that there are multiple support or resistance points between their entry point and stop level, and few if any support or resistance points between their entry price and their target. In today's lesson we are going to look at another factor that many traders use when deciding where to place their stops, the use of technical indicators.

As you hopefully remember from watching my previous lessons we have already covered two indicators and gone over specific strategies on how they can be used to set stops which are the Average True Range and the Parabolic SAR. While these indicators were designed specifically to help traders gauge where to place their stops, many of the other indicators which we have looked at using to pick trade entry points can also be used to decide when to exit a trade.

With this in mind the question then becomes, with all the options available how do you choose which indicator if any to look at when deciding when to exit a trade. Which indicator if any you choose to include in your money management strategy for setting stops is going to depend largely on the type of strategy that you are trading. As a general rule however if you use an indicator to signal for example a buy entry on a trade most traders will keep an eye on that same indicator and take into account when that same indicator signals to exit a trade.

As an example of this, lets say that your analysis of the ADX shows that the chart of x is about to start a nice trend and you decide to place a trade on that analysis. Using the knowledge you have gleaned from our lessons on stops so far you also pick a level for your stop which has some nice protection and is close enough that it fits within your two percent loss limit. During this trade however if the ADX which is the indicator you used primarily to enter the trade begins to signal that the trend is weakening and the market is about to range, should you remain in that trade? The answer to that question is going to depend on the strategy and what other things are going on in the market at the time, but I would say at minimum most successful traders would take this into account when deciding whether or not to continue with the position, regardless of whether their stop had been hit or not.

Lastly on this point there is one indicator that so many traders watch that many traders will at least keep an eye on what happens with this indicator and that is the 50 and the 200 day moving average. These indicators are in general thought to be representative of the overall trend in the market and a break above or below these levels and/or a crossing of the 50 day moving average above/below the 200 day moving average is normally seen as significant for a market and as such many traders will take this into account and place their stops accordingly.

As you probably have noticed when thinking about placing stops using indicators, as you don't know where price is going to be when your indicator signals for a trade exit, you do not have a hard stop in the market, are in the very bad position of not being protected in your trade. This is why, as we have talked about many times in our other lessons, that if this method for setting stops is used it should always be used in conjunction with another method which allows you to set a hard stop and stays within the 2% loss limit rule we have established.

This concept of the stop being a sort of "moving target" is a nice lead in to our next concept and lesson where we are going to be talking about what is known as a trailing stop.

Continue learning:

Course Index

  1. Intro to Technical Analysis
  2. Introduction to Dow Theory
  3. Second 3 Tenets of Dow Theory
  4. How to Read Stock Charts
  5. How to Trade Support and Resistance
  6. Multi Time Frame Analysis
  7. Introduction to the Double Top and Double Bottom Charting Pattern
  8. How to Trade Double Tops Like a Pro
  9. How to Trade the Head and Shoulders Pattern Part 1
  10. How to Trade the Head and Shoulders Pattern Part 2
  11. How to Trade the Wedge Chart Pattern Like a Pro Part 1
  12. How to Trade the Wedge Chart Pattern Like a Pro Part 2
  13. How to Trade the Flag/Pennant Patterns Like a Pro Part 1
  14. How to Trade the Flag/Pennant Patterns Like a Pro Part 2
  15. How to Trade Triangle Chart Patterns Like a Pro Part 1
  16. How to Trade Triangle Chart Patterns Like a Pro Part 2
  17. Learn to Trade with Technical Indicators
  18. How to Trade Moving Averages Like a Pro (Part 1)
  19. How toTrade Moving Averages Like a Pro (Part 2)
  20. How to Trade the MACD Indicator Like a Pro (Part 1)
  21. MACD Indicator: Trade it Like a Pro (Part 2)
  22. How to Trade the Relative Strength Index (RSI) Like a Pro
  23. How to Trade Stochastics Like the Pro's Do
  24. The Difference Between the Fast, Slow and Full Stochastic
  25. How to Trade Bollinger Bands - Stocks, Futures, Forex
  26. How to Trade the Average Directional Index (ADX)
  27. How to Trade the Parabolic SAR
  28. How to Trade Candlestick Chart Formations Part 1
  29. How to Trade Spinning Tops and Doji Candlestick Patterns
  30. How to Trade the Bullish/Bearish Engulfing Candlesticks
  31. How to Trade the Hammer Hanging Man Candlesticks
  32. How to Trade the Morning/Evening Star Candlestick Pattern
  33. How to Trade the Inverted Hammer/Shooting Star Patterns
  34. Why Most Traders Lose Money and The Solution
  35. Why Traders Hold On to Losing Positions
  36. Two Trading Mistakes Which Will Destroy Your Account
  37. Herd Mentality is the Psychology That Leads to Big Trading Losses
  38. Profit Expectations: What Millionaire Traders Know
  39. How to Join the Minority of Traders Who Are Successful
  40. How To Determine Where to Put Your Initial Stop Loss Order
  41. How to Use the Average True Range (ATR) To Set Stops
  42. How to Up Your Chances for Profit When Setting Stops
  43. How to Reduce the Chances of Being Stopped Out on a Trade
  44. How Successful Traders Use Indicators to Place Stops
  45. Stop Your Mind From Causing You to Take Profits Too Soon
  46. How To Use Trailing Stops
  47. Why Position Sizing is So Important in Trading
  48. Why Fixed Position Sizing Is Not the Best Way to Trade
  49. Trading The Martingale and Anti Martingale Strategies
  50. How to Set Trade Position Size for Maximum Profits
  51. Maximize Trading Profits with Correct Position Sizing 2
  52. Fundamental Analysis and The US Economy
  53. A Simple Explanation of the US Economy for Traders
  54. Simple Explanation of The US Economy For Traders Part 2
  55. The Business Cycle and Fiscal Policy - What Traders Know
  56. How Interest Rates Move Markets
  57. What Traders Know About Interest Rates Part 2
  58. What Traders Need to Know About The Structure of The Fed
  59. How the Fed Changes Interest Rates
  60. How to Determine When the Fed is Going to Change Rates
  61. Why Markets Move Ahead of Interest Rate Announcements
  62. How to Trade the GDP Number (Part 1)
  63. The Components of the Gross Domestic Product (GDP)
  64. Intro to Trading Non Farm Payrolls (NFP's)
  65. Trading the News - Economic Numbers - Retail Sales
  66. Trading the News - Economic Numbers - ISM Manufacturing
  67. The Producer Price Index (PPI)
  68. The Consumer Price Index (CPI)
  69. Trade the News - Existing Home Sales Index
  70. How To Interpret the Consumer Confidence Index (CCI)
  71. How to Interpret the Index of Leading Economic Indicators
  72. The Advantages and Disadvantages of Day Trading
  73. The Advantages and Disadvantages of Swing Trading
  74. The Advantages and Disadvantages of Position Trading
  75. How to Keep a Trading Journal
  76. The Most Important Attributes of a Good Trading Journal
  77. The 20 Components of a Successful Trading Plan

Course Description

This is a series of 77 short video lessons meant to give traders an introduction to the basics of trading as well as the components necessary to develop a profitable trading plan.


There are no comments. Be the first to post one.
  Post comment as a guest user.
Click to login or register:
Your name:
Your email:
(will not appear)
Your comment:
(max. 1000 characters)
Are you human? (Sorry)