The Double Bottom strategy in Apple that I posted on 31 July is off to a good start. Here are some thoughts on stop loss management and profit objectives for readers following this situation.
Trade Entry: The original post discussed placing a buy stop entry order just above the peak between the double lows. Under this approach entry may have been around $470.
Profit Objective: The target shown on the chart projects the height of the double bottom from the break point. As so often happens, there is symmetry in this chart. The 100% projection of the double bottom is at the same level as a 50% retracement of the last major decline.
- The initial stop loss was placed behind support back in the body of the double bottom pattern
- The latest swing up looks to have taken a 5 swing structure. I've labelled this on the chart. Price has also just hit the 38.2% retracement level. This makes a move back under the dashed red line from here a potential failure warning. This overlapping behaviour would be a sign of weakness. For this reason the strategy on the chart has now lifted the stop loss just under the dashed red line. Under this approach the worst case result on the trade should now be a small loss (assuming no gaps)
- Another alternative would be to start trailing the stop higher if price hits 61.8% of the way to the target (see black Fib level on the chart). After this point the stop can be moved behind the low of each candle that makes a new high. This is done until there is a candle that completely clears the 61.8% line. At that stage the stop is left at the 61.8% line meaning a reasonable result if price falls short of the target from there.