Every day we are confronted with the question "What's the best stop-loss for a trade?"
Sometimes, we believe we found the answer (let's call it the Holy Grail) only to be disappointed, trades later. The question has no perfect answer: risk aversion levels are particular for each trader. Fear and greed are human emotions, a reality, and we have to cope with and improve them.
The daily chart below shows RRC (Range Resources Corp), an energy company, which was twice included in the Heikin-Ashi Daily Chartbook.
First time with an entry A @11.80 on 5/12/21 and a trailing-stop exit B @14.60 on 7/19/21. Gain +23.73%.
Second inclusion with an entry C @24.45 on 3/2/22 and a trailing-stop exit D @26.70 on 5/9/22. Gain +9.22%.
In both cases, after the exit, price came back above the buy-stop and made new 52-week highs and a top @36.17.
Did we miss opportunities for more gains? I see two positive trades based on discipline: entry and stop-loss exit. Other traders may see 'lost' opportunities (and more risk).
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Let's look now at a higher time frame, the weekly chart. The entry E remains @11.80 on 5/12/21 but the exit F was @18.48 on 12/3/21 for a gain of 56.6%.
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Switching to the monthly chart, RRC is still active with a current gain of 222%.
"There is no perfect setup in trading. All setups, indicators, techniques are good, better, bad, poor. Therefore, the basic fundamental question is "How much am I ready to lose on this trade?" If we are honest with ourselves, we'll see better results."
As expected, any higher time frames exhibit less noise and more trend. Fact: Heikin-Ashi is more suitable for these time horizons.
The weekly chart keeps the trade open for a longer time, with potential for bigger unrealized drawdowns, depending on the entry price. Clearly, the monthly chart is the big winner, but it requires patience.
At the end of the day, it's all about "What's my risk tolerance?"
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