Transcription
Hi everybody, it's JK from Chart Wizards.
We've all heard "cut your losses, let your profits ride," but nobody tells us how to do it. In this example, Peter Brandt does. This 3-day trailing stop is the smartest way I've ever seen to lock in profits without killing the momentum of a trade.
I'm going to break it down step by step using NVTS, the ticker we talked about in the last video. Just for a little bit of context, NVTS was a ticker that I called out on my watch list a few weeks ago at about $7.88. The market shot up over $15, and I mentioned that I would be using the 3-day trailing stop as the exit strategy on the rest of my position. This, of course, created a lot of questions, and I wanted to go over it here.
What is the 3-day trailing stop? The 3-day trailing stop is a setup that requires a couple of different components, but it's non-subjective and it's based on price alone. It's a great way to manage an open trade, which, as we all know, managing an open and winning trade is much harder than managing a losing trade.
The high day is the first important day in the 3-day stop rule that occurred here in NVTS on October 20th, close to $18. The second requirement is a close below the low of that high day. That would be here. And you can see that we got a close below that low on October 22nd. The market closed about $13.60. The stop loss is then placed below the low of day three. We can see here that, at least up to this point, it has not been hit.
Another example of this can be seen in AMD. In the early October Chart Wizards report, we made note of the ascending triangle bottom here between October 1st and 2nd. The market broke out, but the next day closed below the low of that high reference. A stop loss placed under that day would have never been contested, and the following day, the market shot up almost $50.
Fun fact, AMD is breaking out again today of a flag. You can see a 3-day trailing stop setup was not contested. You have the high day on October 20th, an inside day, but then it closed below the low of the high. That low was never contested, and again, AMD shot up with a gap.
So, for short positions, the setup is exactly mirrored on the downside. And Peter often combines this 3-day trailing stop with his last day rule for both initial stops on a position like this one down here and for trailing open profits.
So, if you want to find out more about it, just Google "Peter Brandt 3-day trailing stop," and there's a PDF right here that sends you to his website for free. It's got a portion of his book that was a New York Times bestseller, "Diary of a Professional Commodity Trader," and three pages on the 3-day trailing stop.
Now, I've broken it down for you in real time, so you shouldn't have too many questions, but if you do, you know where to find me. If you found this video informative and you want to see more of them, subscribe at peterlbrandt.com.
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