Good morning traders
KEY POINTS
The zone: within about one weekly ATR of the 200-week EMA.
Stay out: more than two ATRs above it, or more than two below.
The stop: split the entry and put one stop below both fills.
You can be right about a company and still lose money on it. You buy it for a year-long recovery, put a two-week stop under it, and an ordinary wobble takes you out.
The company recovers without you. I've done this myself. Here's the zone I wait for around the 200-week EMA, and the change to the stop that fixes it.
The line
Two hundred weekly closes is close to four years of price. When a liquid, profitable company trades back into that neighbourhood, one of two things is true. The market is offering a cycle-low entry, or the business has really broken.
The white line is the 200-week EMA and the blue line is the 50-week. Each arrow is price coming back to the white line, and each was followed by a run of about 200%, 96% and 89%. That's hindsight on one large, profitable company, and it isn't a forecast.
How close is close enough?
I only buy within about one weekly ATR of the 200-week EMA, on either side. ATR is the average true range, the typical size of a weekly swing, so a volatile stock gets a wider zone and a calm one a narrower zone.
Above two ATRs: the value entry is gone. Buying here is chasing.
Below two ATRs: the market is telling you the long trend may be over. That isn't a bargain.
Three checks, in order
If any one fails, I wait. On my scanner, the stocks furthest below the line sit under a 50-week that is also under the 200-week, so they get No Signal. Cheap isn't the same as a buy zone.
"My stop got hit and the stock recovered. What happened?"
You transplanted a stop. You put a swing trader's stop under a position that was always going to take a year. I call it stop transplanting, and it's the most expensive mistake on the slow side of a trading board.
Half at the zone, half lower, and one stop below both. It's the same total money at risk, split into two fills, each half smaller, with the stop further away. No leverage on this one, ever.
Try this tonight
Take the longest-held position you own and answer one question. Where is the stop, and which clock did you set it on?
If you plan to own something for a year with a stop sized for a fortnight, ordinary noise will take it off you. It's fixable in about five minutes.
→ The full rules are in the 200-week EMA guide. The trades live on the Trading Desk, and the RB Journal logs each one against the rule you wrote for it.
→ Where does your own process leak? The investing quiz finds it.
Education, not financial advice. Past performance doesn't guarantee future results.