The S&P 500 index took out its early April high yesterday.
This provides an opportunity to move your stop loss under the Gartley buy strategy I posted back on 16 March. So I thought an update may be useful to readers following this strategy.
If you’d like details on how this strategy works, you can easily access my previous posts on it via the blog archives. The original buy set up was posted on 16 March followed by a strategy update on 25 March.
The story to date is that there was a buy set up at around 1299. This was actually not only a buy set up but an opportunity to take profit on a Gartley sell set up from around 1318 that I’d posted previously.
The initial target on the buy set up was achieved when price hit 1338. Profit could have been taken on half the position at that price with 50% of the long position left in place looking for the second target of 1386.
One good basic philosophy in developing trading strategies is to move the stop to the nearest point of failure i.e. the nearest point at which the set up you entered can be said to have failed. There is no point in staying with a trade if the set up that caused you to enter is no longer valid.
This Gartley set up assumes that the point “c” on the chart will be the end of a correction and the beginning of a new strong/impulsive up trend.
So far so good. However, now that we have cleared the early April peak we don’t want price to overlap back below that level. Overlap would be a sign that the up trend we are following is not impulsive and so represents a point of failure for the strategy.
A bit of tolerance in how you define overlap is a good idea. However, a move below the dashed red support line would pretty clearly represent a move through the support zone under the peak.
On that basis, the stop could be set just behind the red line at around 1306
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