Ask Colin

I use Kagi charts drawn on closing prices to place my stops. Is this where your stops are?

Not necessarily. It would only be the same if the day that made the Kagi low was also the close for the day and there were no other days around it where the daily low was below the close for that day.

To understand this clearly, set up a Kagi chart and find when the lows are made. Then go and look at a candlestick chart of the period around the Kagi low. Candle charts are suggested because the close is easier to see. If you see lower shadows below the Kagi low close, then they are situations when you would not be putting your stop where I put it.

I place my stops below the lows, because they define the troughs in the trend. The closing price is quite irrelevant to my method because I trade the trend and the trend is defined by the peaks and troughs.

By the way, what I suggested above is an essential discipline for both beginners and expert traders. Before you settle on any trading plan, or any change to a trading plan, you should have tested it on LOTS AND LOTS (means 50 or more, not 5 or 6) of charts looking to understand all the possible situations and how your plan would deal with them. You need to have thought all these things through before you encounter them in an actual trade. When under pressure in a trade it is a disaster if you have to start thinking out your trading plan for the situation. You must have been through it all before on paper and know instinctively (means knowing without having to think consciously) what you need to do. In this respect, trading is no different to anything else you try to do well in life.

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