When setting these points, here are some key considerations:
- Use longer-term moving averages for more volatile stocks to reduce the chance that a meaningless price swing will trigger a stop-loss order to be executed.
- Adjust the moving averages to match target price ranges; for example, longer targets should use larger moving averages to reduce the number of signals generated.
- Stop losses should not be closer than 1.5-times the current high-to-low range (volatility), as it is too likely to get executed without reason.
- Adjust the stop loss according to the market's volatility; if the stock price isn't moving too much, then the stop-loss points can be tightened.
- Use known fundamental events, such as earnings releases, as key time periods to be in or out of a trade as volatility and uncertainty can rise.
'via Blog this'
