(Click on image above to enlarge it.)
Here at the daily level again, we're focused on the week ending 10/3 because that's where the NMC/NXC setup and entry occurred (see magenta arrow on weekly sub-graph at the bottom of the chart).
We can see that on Tuesday 9/30 prices cut above the STX (labeled #1A), in a similar fashion to the way the July setup and entry unfolded. Now notice how well the STX shadowed the advance throughout most of October, remaining far enough below the price action to allow it some breathing room for random noise, yet near enough to allow us to capture most of the available unfolding open equity. That's exactly what we expect a well performing stop to accomplish, and what the STX does so well. It trailed prices in lockstep until the ultimate top was achieved and the STX was violated on 10/29 (magenta arrow on daily price bars).
In the prior July/August example we noted two consecutive days where the STX stop was operative - the first day on a range violation, and the next day on a closing basis. It was noted that either of them might be acceptable as a stop criteria, depending on the style of trading that one is most comfortable using.
In this example note the severity of the violation of the STX stop on 10/29. The initial penetration of the STX occurred early in the day and very near the absolute high of the entire month long advance. However, by the close of the bar, the reversal had been so violent that the prior 5 days worth of advance were erased. Had we used a close only stop, much of the parabolic late stage profits would have been given back. A little thinking goes a long way, and by using the information provided by the Ocean tools on the weekly chart, we could have anticipated the possibility of a vicious reversal. How?
During the weekly analysis, we noted several Ocean events signifying an overbought condition soon after the initial entry, culminating with NXC violating its overbought threshold on the week ending 10/24 (labeled #3 on the weekly chart in the NXC sub-graph). That was the highest weekly NXC score in almost 2 years, making this a very overbought move. Even though NXC is a bounded tool, and designed to operate within a fixed maximum and minimum range, this is still an important event.
However, the message from the weekly NMC was even more extraordinary. NMC values function on a unbounded scale, and therefore can reach a theoretically unlimited high or low extreme depending on the behavior of the market. In this case, on the weekly chart, NMC had exceeded a value of 80 on the week ending 10/24. That figure was the highest NMC value ever recorded in this market, and more than 3 times the previous highest value recorded within the last ten years. These are just a couple of additional ways to utilize the strengths of the Ocean tools to internally read the market, and thus to be able to better capitalize on trading opportunities.
These messages coming from other Ocean tools clearly indicate how extreme this move was, and given the knowledge of how prices often behave after a parabolic advance, the possibility of a violent reversal should have been expected. Thus, the correct application of the STX would be based upon the range violation basis (rather than waiting on the close) as the trigger to exit the trade, resulting in the capture of almost all of the available open equity generated during the historic move in October 2008.
In this example, the STX has allowed us to exit the trade one day after the price high, and to capture more than 85% of the total open equity that was available to us during the advance. As we see, the Ocean tools are designed to operate in synergy with one another. The STX is an incredible stop mechanism in its own right, and when married with the information available from other Ocean tools, provides an extremely effective way to capture profit.
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