Protecting the higher low: where stops belong in a trend continuation

[Fairman]

Protecting the higher low: where stops belong in a trend continuation

In an uptrend, the last higher low is the level that, if broken with a close, would turn the structure. So it seems natural to put stops just below it. The problem is that this level is also the most visible, so it is often swept before price continues. My approach is to separate invalidation from placement. Invalidation is the close below the higher low on the trading timeframe. Placement is where I physically put the stop to survive normal noise, usually below the sweep zone with a buffer. If the position size would be too large with that wider stop, I reduce size rather than tighten the stop. I also avoid adding to winners right at the higher low, because that is where reversals begin. I add only after a new break confirms the trend is still intact. This keeps risk consistent and avoids the cycle of being stopped out by a wick right before the move that you predicted.

[Fairman]

Reducing size instead of tightening the stop is the key line here, and it's the one people skip because a smaller position feels like a smaller opportunity. The R is the same either way though. One more detail: spread can widen right where these sweeps happen, especially around session opens, so the buffer below the higher low should account for the spread you'd see at that time of day, not the quiet average. On a pair like GBPJPY that difference can be large enough to decide whether you're stopped out or not, so I'd check the spread history first.

[Fairman]

Something to think about with trailing in a continuation: if you move the stop under each new higher low as it forms, you're putting it right back into the obvious spot the post warns about. I'd trail to the zone below the higher low, or only trail once the next break has closed, so you're not tightening into a level that's likely to get swept. It is slower and gives back a bit more on reversals, but it stops the pattern of getting wicked out and then watching the trend carry on without you. How do others here handle trailing in this style?