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The Profit-lock stop
Traders are familiar with the scenario. You have a position and the market is going steadily up. Good. Suddenly a sharp price move occurs. The profit increases accordingly. Even better. The trader now faces a dilemma. Close the position and take the profit? Move the stop to a higher price level? But which level? Too high and the position is stopped out instantly, too low and the profit may evaporate.
The Profit-lock stop is the perfect solution. When a sharp price move occurs, the position is not closed, but a stop is placed at a precise price level based on the size of the price move. Whatever happens now, with the position still open and able to generate more profit and with the stop automatically placed at a price based on the sharp price move, the trader has locked-in the unexpected profit. Hence the name, Profit-lock stop.
The advantages of the Profit-lock stop:
- The position is not closed. The trader benefits from additional price moves.
- The stop is placed automatically (activate TradeGuard+AutoOrder or AutoOrder).
- The stop is placed at a scientific level. The trader locks-in the bulk of the unexpected profit.
- The unique stop level is calculated on the basis of sharp price move patterns and their relative size versus current market volatility.
Note: The NanoTrader platform has an enviable reputation for the many types of stop orders it offers. The trader can combine different types of stop orders on one position. The NanoTrader will manage the combination of stop orders for him.
The Profit-lock stop in detail
The Profit-lock stop will only be activated if a sharp price movement occurs. It can be used either on its own or in combination with other stop loss orders.
The activation of the Profit-lock stop order is triggered by a sharp price move pattern of a particular minimum size and consisting of four candles. At the close of each candle the NanoTrader checks if the conditions are met. If the conditions are met, the stop is placed at the low of the candle in the case of a long position and at the high of the candle in the case of a short sell position.
This example shows a long position opened at
point 1. The position is initially protected by a simple fixed
stop. A sharp price move occurs. At point 2 the Profit-lock
stop is activated. The position is stopped out in the next
candle, before the market goes down. The Profit-lock stop
saved the trader’s profit.
It is not uncommon for several additional sharp price moves to occur after the first sharp price move. Each time the stop will be changed to the next optimal Profit-lock price level. This results in a trailing effect.
The Profit-lock stop comes with a set of parameters that the trader must understand in order to use the stop correctly.
- Initial_Stop: Choose if you want to place an initial stop (=yes) or not (=no). In case the user opts for “no” the Profit-lock stop will only be placed if a sharp price movement occur.
- Unit_For_Stop: Specify the unit of the stop in order to determine the initial stop level.
- ATR_Span: Choose the span of the ATR in case the unit for the stop is set to ATR.
- Initial_Distance_Long: Define the distance of the initial stop in the unit chosen for a long position.
- Initial_Distance_Short: Define the distance of the initial stop in the unit chosen for a short position.
- Sensitivity: Allows you to set the sensitivity of the Profit-lock stop. The higher you set this value, the stronger/significant the price movement must be for the Profit Lock Stop to be activated. A lower value will trigger the stop much more often than a higher value.
This example shows a long position. The
position is initially protected by a fixed stop. A sharp price
move triggers the first Profit-lock stop (2). Several
additional sharp price moves push the stop to a higher level,
resulting in more profit for the trader. The stop is hit and
the position closed (3)... just before the market gives up a
lot of its gains.
This example shows a short sell position. The position is initially protected by a fixed stop. A sharp price move triggers the first Profit-lock stop (2). Several subsequent sharp price moves push the stop level down. The position is stopped out with a good profit (3). Notice the market reverses, but the Profit-lock stop has already saved the trader’s profit.
Using the NanoTrader Full:
Open a chart of the instrument you want to trade (new chart button).
Click the "add an indicator" icon.
Select the "Profit-lock stop" in the "WHS Store" folder.
If required, adapt the settings.
If you want to trade semi-automatically (open position manually, close position automatically), activate TradeGuard+AutoOrder in the chart. If you want to trade automatically, activate AutoOrder in the chart.