(This is Part 7 of a series. Go back to Part 6.)
Notice two things about the chart of daily natural gas above: First, at the bottom right note how nat gas suddenly gapped up way beyond the stop (assuming we were short on the previous move down).
That’s a fact of life in trading that we must accept, that no stop can necessarily always protect us from unexpected high-sigma events, that is, ensure that our stoploss will be limited to the degree of the stop. Would that it were so, but it isn’t, at least not on this planet.
The second thing to notice is the “heartbreaker” here as the market briefly dips below the STX, only to immediately reverse itself and resume its upward march. That also is a fact of life that will happen sometimes.
In fact, the STX is doing its job at that point, because it’s calculating that a move below itself there could be the start of a reversal in the major trend that it must try to protect us against.
In an example such as this one, where the market violates the STX and then immediately moves beyond it again, use your normal Ocean tools to indicate whether the major trend has resumed or not. In particular, if a zero hit of the NMC or the NMC2 occurs at that point in time we can feel much more confident about climbing back on the trade.
Now let's look at another “heartbreaker":
(This is the end of Part 7. Go to Part 8.)
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