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Chapter Seventeen
Chuck Lebeau:
Looking for the Fire Exit or Fire Wall |
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The Internet and newsgroups are important in terms of getting ideas for trading from a fundamental or technical analysis viewpoint. The following exchanges were in response to two questions I asked, over the Net, of my friend Chuck LeBeau. Chuck has lectured at both my Chicago and L.A. seminars. |
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Neal: Chuck, any ideas for placing stops when trading Chicago markets? |
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Chuck: Well, one is the Chandelier Exit. We have often advocated the importance of good exits and this is one of my favorites. The exit stop is placed at a multiple of average true ranges from the highest high or highest close since the entry of the trade. As the highs get higher, the stop moves up, but it never moves downward. (Note: Average true range is the actual range, taking into account gaps caused by reports, fast markets, etc.) |
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Examples:
Exit at the highest high since entry minus 3 ATR on a stop.
Exit at the highest close since entry minus 2.5 ATR on a stop. |
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Application: We like the Chandelier Exit as one of our exits for trend-following systems. (The name is derived from the fact that the exit is hung downward from the ceiling of a market.) |
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