This Stop-Loss Method Saved So Many of My Swing Trades

Video Transcript

Have you ever been stopped out of a perfectly good trade by just a tiny wick, only to watch the price immediately reverse and move in your direction? Well, that used to happen to me a lot. So, I started using what I call the alternative stop-loss method. I use it for all my swing trades because it helps me avoid getting kicked out too early and, in many cases, turn a potential loser into a winner. Let me now show you exactly how this works.

Take a look at this example here. We have this heavy volume zone followed by this sell-off here. So, you’d want to trade from the beginning of that heavy volume zone. That means somewhere in here would be a short. The stop-loss would be behind a barrier, and the barrier is this heavy volume zone. So, normally, the stop would be somewhere in here.

But what I do, and what this alternative stop-loss method is all about, is that when a candle, if a candle, just wicks past my stop-loss like in here, I don’t close the trade. I only close the trade if the daily candle closes above the stop-loss line. But if it just wicks through just a little bit like in here, I still remain in the trade.

That means that in my platform, I actually don’t have a stop-loss in here. I just have a line there which I watch. If the daily candle closes past it, I close the trade manually. That’s why I’m checking the charts every evening. But if it just wicks through like this, maybe collecting some liquidity above those highs or just making some full breakout, then it enables me to still stay in a good trade without being kicked out of it.

Okay? Because it happened so many times that I was kicked out of a perfect trade. So, that’s why I changed this approach to the alternative stop-loss approach.

But you need to be safe, and that’s why you need to have a catastrophic stop-loss. So, I have a hard-set stop called the catastrophic stop-loss, and it is 50% above the normal stop-loss. So, let’s say that this is 100 pips, and if this is 100 pips, then my catastrophic stop-loss is 150 pips.

Okay. If the price touches the catastrophic stop-loss, I’m out. Okay, this is the stop which I have in my platform. It’s a hard-set stop-loss. It’s there to prevent me from taking massive losses.

Okay, so this is the alternative stop-loss method. As you can see, in this case, it would save my trade, and I would turn a loser into a winner. That’s why I use it.

Here is a scenario where it actually fails. Here we have a heavy volume zone, and I would enter probably from this place because this is the beginning of a fair value gap. So, I would go short from there.

But the important thing is the stop-loss placement. In this case, I would place the stop behind the heavy volume barrier. I would place it at the top of this little swing point. This would be my stop. The catastrophic stop would be somewhere in here.

And in this case, the daily candle closed above the stop-loss line. That means that when I see this, I terminate the trade. I quit. The trade is over.

So, in this case, the alternative stop-loss didn’t really help, and I quit the trade in here at the daily close with a loss.

So, this is how it works. You’ll see, if you start using the alternative method, you’ll see that it will save your trade many times, and you’ll have better performance than with using the standard stop.

If you are not into using the alternative stop-loss, no problem. Just keep using the standard stop-loss. But I just wanted to mention the alternative version, which I prefer and which I use, and which I hope all my students are…