Innovative Way Of Determining Stop Loss Levels

I was reading an article last week and the author's method of determining his stop loss levels was new to me.  I had never before heard or read anyone else who does it this way and that is why I'm posting this information.  I'm not saying I'm going to adopt this method in my trading but it is certainly refreshing to get a different perspective.

The author, Derek Frey, uses the fibonacci sequence, specifically 8, 13, 21, 34, 55, and 89 as stop levels.  For example, let's say you are shorting the USD/JPY and you use normally use the previous high as your stop level plus five pips, in this case, 121.66.  What the author does instead is to find the next closest Fibonacci number, which is 89, and would set his stop loss at 121.89.  This is all open to trader discretion and depending on market conditions such as volatility, one could also use the second closest Fibonacci level in this case, which is 8, setting their stop at 122.08.

The entire article titled, "Using Stop Loss Orders to Determine When to Enter a Trader" is worth the read and can be found in the March 2007 issue of PitNews eMagazine.  Unfortunately I can't post the pdf here because that got me in trouble with Currency Trader Magazine a while back.  You can obtain the entire issue for free by going to http://www.pitnews.com.

Popularity: 1%