the hAnDbook of teChnICAl AnAlysIsmay also position the stoplosses on the other side of the cloud, that is, be-
low the Senkou B cloud boundary, assuming that the risk associated with the
larger stopsize is still within the money management guidelines. Similarly, if
price tests the Senkou B cloud boundary from below, the stoploss is positioned
within the cloud, just above the Senkou B cloud boundary, or even above
the Senkou A boundary if the stopsize is well within its money management
guidelines. With respect to reversal entries, it is recommended that entries be
initiated at areas where the cloud is thicker, where the barriers are generally
regarded as strongest and most reliable■ (^) Reversal entries may also be taken against the cloud boundaries from within
the cloud. In such cases, the stoploss is placed outside the cloud, just beyond
the boundary where the entry was initiated. The stopsize may be determined
using various price‐filtering methods like MAE (Maximum Adverse Excursion),
volatility based stopsizing using multiples of ATR or standard deviation, fixed
and variable percentage stopsizing, algorithmic or pattern based stops (e.g.,
Guppy’s Count Back Line, 2‐Bar exits, etc.), and the use of other overlay barri-
ers like Fibonacci, Gann, or Floor Trader’s Pivot point levels for a loss exit.
■ (^) Entries after a failed cloud breakout may also be initiated. The trade is initiat-
ed once price retreats back within the cloud. The actual point of entry depends
on the price filtering employed. The stoploss should be placed just beyond the
highest high of a failed upside breakout formation and just beyond the lowest
low of a failed downside breakout formation.
■ (^) For cloud breakouts, it is best to initiate entries at areas where the cloud
is relatively thin, that is where the barriers to price are generally regarded
as weakest. The actual entry point depends again on the type of price filter-
ing used, whether it is closing price, absolute dollar or point move, volatility
based, percentage of price, or pattern based. The stop is usually positioned on
the other side of the thin cloud.
See Figure 16.21 for a visual guide of the various ways to initiate a potential
entry at the cloud boundaries.
FIgure 16.21 Indentifying Potential Trade Entries on the Daily South Korea iShares.
Courtesy of Stockcharts.com