@rick64 The other important aspect of the 3/8 trap is exactly where to exit to maximize profit while keeping risk minimal. Pick an exit strategy suited to the personality of the individual trader. In an ideal world nobody would ever enter a trade without having an exit strategy in place and the position size would be determined by the distance between the stop loss and the buying price divided into the risk profile of the individual trader.
Choices include:
1) putting a sell stop in at the same time as the buy order and the stop loss are placed so that if the reward to risk ratio price target of 2:1, 3:1, 4:1, or 5:1 is touched by price then trade is exited automatically. This basically automates the trade so the position is stopped out if it turns lower when price touches a stop loss or sold when the price target is reached. The trade is not altered at all for any reason under this exit method. The 2:1, 3:1, 5:1 is simply the price between where the stop loss is placed and the buying price known as 1R.
This distance known as one R is also important in the formula for determining the correct position size for a trade. For a $10,000 trading account risking 2% of the account per trade the maximum amount to risk on any one trade is $200.00. If one R (the price between the stop loss and the buy price) is 50cents then $200 divided by .5 means 400 shares is the correct position size, if one R equals 20 cents then $200.00 divided by 0 .2 means 1000 shares is the correct position size, if one R is 1 cent then $200.00 divided by .01 means 20,000 shares is the correct position size. A $5,000 account where the trader gains 5 R per month, compounds at 2% of account size per trade and using correct position size grows into $1.5 million in five years in theory.
2) Place a trailing stop at the same time the buy order and the stop loss are placed to automatically get out of the position when price meets the trailing stop loss during a pull back or price touches the stop loss triggers an exit.
3) Exit manually when price falls below the 8ema
4) Exit manually when the 3ema crosses below the 8ema
5) Exit manually when price falls below VWAP
6) Exit manually if price falls below a lower trend line
7) Exit manually if price falls below a horizontal support line
8) Exit manually if a red candle forms at resistance.
Hope this helps and wishing you all the best with the surgery
