No loss guarantee and stop loss in Trend Hunter Strategy
No loss guarantee
In Trend Hunter Strategy, we try to guarantee no loss for our investment as soon as possible, that's why, in an appropriate time, we modify the stop-loss point of trades to their entry points (Break-Even). This way, in case of the change in market direction and the return of price, all open trades, will be closed at zero and no loss threatens our investment.
Regarding that take-profit points, are in fact support or resistance levels that might cause the price to return, so the best time to modify stop-loss point of trades to their entry point is when the price reaches the firsts take-profit points. In brief, when the price hits 1st, 2nd or 3rd take-profit point (TP1, TP2, TP3), we modify stop-loss point of trades to their entry point. If 1st take-profit point is very close to the entry point or due to other technical factors, more probability of success in reaching to next take-profit points is seen, it's better to modify when the price reaches 2nd or 3rd take-profit point. Because if we modify soon, it's possible that retracement waves of the market could result in an early and unreasonable close of trades.
In the figure, in the first buy at 2014-08-08, after price hit the first profit point, we had modified the stop-loss of other trades to their entry point and after price returned, all were closed at their entry. So we take only 40 pips of profit.
In the second buy at 2014-10-02, in the same way, after taking 324 pips of profit from take-profit points 1, 2 and 3, the price returned and other trades were closed at their entry point.
In the third buy at 2014-11-12, after the price hit take-profit points 1 and 2 and taking 236 pips of profit, again the market returned and other trades were closed without any loss.
But see the result of 4th buy at the next section and in the following figure.
WEMA-21: One of the very useful and easy techniques of finding the best time to modify stop-loss points of trades to their entry point, is WEMA-21. Thus when the price passes over the WEMA-21 line for the size of its ATR (264 days), we can modify the stop-loss point of trades to their entry point.
Loss acceptance and exit
In Trend Hunter Strategy, when the entry zone breaks, we accept the loss and close our trades with the loss. After entering to trades, if we have not yet modified the stop-loss point of trades to their entry points and market breaks the last level of entry zone, we must accept that we have lost and must close our trades with the loss.
Break of entry zone is when a whole candle in daily timeframe is formed behind the entry zone. Be careful that at least 80% of the candle body must be behind the entry zone and this candle must be a "Health Candle".
At 2015-01-02, we enter the market with buy trades. The price returned after hitting the first take-profit point and generating 45 pips of profit. As we had not modified the stop-loss point of trades to their entry points, these trades were in the loss and finally at 2015-01-15 when a whole health descending candle was formed below entry zone, we accepted the loss and close other trades.
In this way, Trend Hunter Strategy is using an accurate stop-loss strategy (Soft Stop-Loss) instead of specifying an accurate stop-loss point (Hard Stop-Loss). Pay attention that stop-loss point is meaningless for long-term strategies and it is usually used in short-term and intraday strategies. Of course, it doesn't mean that we can't calculate probable loss, before entering into trades. The distance between the probable stop-loss point and last level of entry zone will be equal to the average length of the body of daily candles in the past year.