Look at the daily chart of United Spirits, last candle date is 24-10-2017. The stock was in clear downtrend which got broken when the last lower high was broken.
Then, on the day of 23-10-2017 (previous to the last candle showed here), it completed the structure of a complete uptrend by creating higher bottom – higher high – higher bottom.
So, on the next trading day i.e. 24-10-2017 we placed a buy order at 2538 which is the high of the candle which formed last swing high. It got triggered!
Our stop loss is the low of the candle which made the last swing low i.e. 2449.8.
The next two days it didn’t hit the stop loss and neither did it make another swing low. So there is no change of stop-loss so far.
The next day it gapped up to the moon! The upside was too high and likely to have triggered due to a fundamental event. So we moved the stop loss to the higher side to protect our profits.
In a classic way, the stop loss should stay at the same place but we always have our own version of keeping the trailing stop loss based on the movement of the scrip. As you can see it was a sideways trend in that red box area. So the rationale was to move the stop loss at the resistance of that sideways trend which is broken and hence should act like support!
Now on the 16th day, it confirmed the swing low at the previous candle. Swing Highs or Swing Lows needs both the neighboring candles to form as per the classic definition of Swing Highs and Swing Lows.
Our only task is to update the stop loss to the low of the candle which made Swing Low i.e. 2970.8
Then continue doing the same process. Trailing stop loss is always recommend to be a higher low but you can shift it to the higher position based on your risk appetite. But the less the interference or modification, the better the result!
Also, you can choose closing basis stop loss (CBSL). Like in the above case, if you put your stop loss as the closing basis, the stop loss is not hit! But then comes the conditions or rule set of putting CBSL. We’ll recommend to keep it simple for people will less trading experience as they will end up in speculation.
So on the day 14-12-2017 our stop loss is hit when it breached the low of the candle which made last swing low killing the perfect uptrend
So here go the details of our Trade 1:
Entry – 2538
Exit – 3320.1
Date of Entry – 24/10/2017
Date of Exit – 14/12/2017
Profit – 782.1
Returns – 30.81%
Now moving forward, we are looking to spot another uptrend or downtrend.
Now we spot another uptrend after a few days of our last trade. Although it looks like it didn’t form higher lows correctly, the low of the blue marked candle is 3544.8 and the low of the red marked candle is 3559. So it is a higher low.
Now our task is to put a buy order at the higher high like the last time which is at 4005.15. But after few days of follow up, it looks like it made a lower high which makes the uptrend a weak one.
Till it makes higher highs, it will still be considered as an uptrend but it is recommended to avoid these kinds of uptrends which make lower highs instead of higher highs while spotting the trade.
Then it crashed. Now it looks like it is going to form a downtrend. Here goes a speculation. If it forms another lower high, we can look to put a sell order at the low of the last swing low with last lower high as (the/our) stop loss.