Using moving average to set stop

You may already have some decent paper profits on your portfolio and are wondering when you should take some profits before the recent mini bull turns around. This is where we can use the "Stop".

Most traders and market timers use percentage of the stock price anywhere from 5% to 15% to set their mental or hard stops. Here is another way of setting stops using moving averages.

With existing long position (short uses reverse method)

1. Sell half (1/2) when weekly MA-4 crosses below MA-18 (MA = Moving average)
2. Sell remaining 1/2 when MA-4 crosses below MA-39

If the price bounced back above the MA-18 line, I would buy back 1/2 of the long position when:

1. Weekly MA-4 is greater than 20% of MA-18 after MA-4 crossed above MA-18.

By buying back 1/2 of the position, one can continue to maximize the profits of the trending market despite a temporarily setback.

                                (click the chart to enlarge)