Click on the chart to enlarge it.
Although we stopped the analysis at the weekly level, I can tell you that the July and August, 2003 counter-trend retracement produced another ZeroHit for yet another entry on the long side that caught the remaining thrust into the ultimate top in early 2004.
Notice how close to the zero line that NMC got during this July/August period, and how it created a divergence against price (lower low in price, higher low in NMC). In fact, the NMC near-miss of the zero line and the NMC divergence was also apparent on the 2-week chart as well.
And did you notice anything else? In case you missed it, the NMM ROC had also exceeded its lower boundary on both the weekly and two-week charts at exactly the same time and was also setting up a divergence against price. These are important tip-offs to dial down looking for a high-quality lower timeframe entry.
Back to the subject of stops: There is another even better possible resolution to this whole issue of tight vs. loose stops and breathing room for the trade: That is to trade in multiple contracts and to peel them off at predetermined price levels or Ocean-based events.
As an example, we could put three units on initially (whatever our unit size is) and then take one off when open equity exceeds the initial risk, then move the stop on one of the two remaining units up to breakeven. This way, we're in a risk-free trade on the total initial investment from that point forward.
Then as additional profits accrue we might trail a stop on one unit at the Fast NMA and trail the other one at the NMA itself. Such advanced strategies are beyond the scope of this example but are fully explored during the Ocean Workshop.
(This is the end of Part 9. Go to Part 10.)
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