Student’s Question:When I hear about strategies for placing a stop, I have come across something called the “Two Day Low Stop”. Would you provide some insight on that?ThanksInstructor’s Response:Sure…Take a look at the chart below for a visual.
In this example a long position was taken. On this Daily chart, the trader would count back two candles from the currently open candle and place the stop several pips below the lowest point to which that candle traded. When the currently open candle closes, the trader will then move one candle to the right and adjust the stop up accordingly. This process can continue until a profit target (limit) is hit or until price action retraces to the level of the advancing stop.
In the case of a short (sell) position, the stop would be placed above the high of candle two from the right of the open candle and the stop would be adjusted down as price action moves in that direction.While this strategy can be used in any market condition, it will function best in a trending market.
