Ask Colin

You place your stops below SIGNIFICANT lows. How do you define SIGNIFICANT?

What I mean here is that each medium term up trend is made up of a series of peaks and troughs. I place my stops below the low of the last trough in the uptrend and move it up to just under the next trough every time a new high is made for the trend. I also sell if a lower peak is confirmed by a fall below the previous trough.

Thus, a trough in the trend is only formed in two circumstances:

1. A new high has been made for the trend. This validates the last trough. However, in between the main or SIGNIFICANT troughs there will be other troughs that are part of the trend, but in a shorter time frame. So, SIGNIFICANT refers to the troughs that are of significance for the trend we are trading, as apart from other troughs that are in a shorter time frame and therefore not significant.

2. A rally fails to make a new high and then the price falls below the trough before the rally. This validates that trough as a reference for selling.

SIGNIFICANT has its meaning in relation to the trough being relevant to the trend we are trading, not with respect to how far a low may be below a trough?