Click on the chart to enlarge it.
Considering the magnitude of the highest timeframe driving this trade (quarterly bars), my inclination would be to allow this market the necessary breathing room to work its magic and therefore to use the NMA moving average as a trailing stop for the trade.
Had this strategy been employed, the trade would still be in force (late July, 2004) and the open profit from the initial Cross Kiss ZeroHit signal would be about $9,500 per contract, with roughly an $800 risk to assume the trade. That's over an 11-to-1 reward-to-risk ratio and more than a 500% return on required margin!
It's important to note that by rolling down to the half-day (113-min) chart we were able to reduce the risk necessary to assume the trade from over $1,700 (at the level of the three-day chart) to about $800, a substantial 50% risk reduction—while also getting an almost $800 better entry price on the trade.
I hope that these trade metrics vividly demonstrate that it's always well worth the effort to do multiple timeframe research before jumping into a trade that's under-analyzed.
Had the NMA trailing stop been used and each additional ZeroHit setup & entry signal been used to add another contract you would currently be carrying 5 contracts and the combined profits on them would exceed $30,000.
Instead of using the NMA as a trailing stop, a close above the Fast NMA could have been employed. I wouldn't advise this given the fact that a quarterly chart is driving the price action (with all lower time frames being supportive) and we want the trade to have breathing room.
However, had such a stop been used every single location where you were stopped out of the trade was immediately followed by another zero hit setup and entry. A couple of these re-entries were at prices better that the Fast NMA exit a day or so before!
(This is the end of Part 8. Go to Part 9.)
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