CFA Level I Review - Level 1 Weekend Marathon

Three-bar stop loss procedure. In addition to the hourly or half hourly follow-up stop loss procedure recommended above, consider using a trailing stop loss below the lowest low of the last three price bars for long positions and above the highest high of the last three price bars for short positions.

In other words, if the last three 5-minute price bars show lows of 34.50, 34.20, and 33.97, then your trailing stop loss for a long position would be below 33.97, since this is the lowest of the three lows. When the next bar posts you can change your stop loss if necessary.

In the case of a short position, your trailing stop loss will be above the highest of high the last three price bars. Remember that these stop losses must be mental stop losses. Don't keep changing your stop loss every 5 minutes, or both you and your broker will go crazy, and you will be reprimanded.

Delayed Gap Open Signals (DGO) On occasion a market will make a very large gap opening up or down. The gap size (difference between previous day's low or high and the open) will be much larger than usual.

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