Section 7 discusses stop methodologies. A stop is a price at which a trade might be exited, either in whole or part, or at which increased caution might be exercised. Many investment-focused techniques only emphasize entries, but when trading, taking profit and cutting losses are imperative. Stops help determine points where getting out of a trade might be called for, and they help traders exercise the discipline necessary to follow proper exit strategies.

QUESTION 7.2   C Weekly with SMAs 3, 21

1. If you were using a moving average stop and reverse system (SAR), what additional method could you use to exit prior to a crossover, with only the information on the chart?
2. Show an example of when you might have used this stop to exit a long trade. Explain.
3. Show an example of when you might have used this stop to exit a short trade. Explain.

QUESTION 7.3   GILD with Stops $4.33 (Red) and $7.66 (Blue)

1. What is the type of stop shown above called?
2. Which stop would have worked better if you wanted to let the trend run?
3. Starting with the blue up arrow, circle the times where there was a close below the $4.33 stop but not the $7.66.
4. Show where you would have gotten out on a $7.66 stop hit.
5. Instead of exiting in late January when the $7.66 stop was hit, how might you have exited before the decline? What's that type of stop called?

QUESTION 7.4   X with Parabolic (Default Settings = 0.02, 0.2, 0.02)

1. Mark the parabolic stop and reverse (SAR) points
2. What do you think about the performance of this indicator in this choppy market?
3. Circle a few examples of performance areas you didn't like.
4. With the benefit of hindsight, how would you have increased or decreased the variables?
5. What compromise did you have to make to improve the functioning of the Parabolic?

QUESTION 7.5   Z Daily with DevStops (34 MA otherwise Defaults)

1. Mark the designations of the displays.
2. What are default numbers of DTR standard deviations over the mean for the blue stops?
3. Circle an instance where there was a close below Dev3 and the stops did not flip.
4. Circle an instance where there was a close below Dev3 and the stops flipped thereafter.
5. Draw an arrow pointing out when the stops flipped.
6. Circle an instance where there was a Dev2 hit, but not a close beyond.

QUESTION 7.6   Z Candlesticks Daily with Parabolic Default

1. Mark the Parabolic SAR points with up and down arrows.
2. Identify five bullish candlestick patterns. For simplicity, using confirmation only, show how your stops could have been accelerated for each example.
3. Circle the hanging man on the chart. Given that the candlestick before it is too small to be a Harami line, how might you handle the situation if you wanted to accelerate your stops?