Elder’s SafeZone Stop: Average Price Penetration for Stop Placement

Summary

The document presents the SafeZone stop method attributed to Alexander Elder. It estimates average downside and upside price penetration over a configurable lookback period, then scales each average by a chosen factor. For a bullish stop, the scaled downside measure is subtracted from the current low; for a bearish stop, the scaled upside measure is added to the current high. The example settings use a factor of two and a ten-period lookback.

The calculation also shows protected stop lines that constrain the current levels using recent stop values, apparently to reduce unfavorable movement in the stop series. The text provides indicator logic rather than a tested trading system: it gives no performance evidence, asset or timeframe guidance, or rules for entering and exiting positions. It also does not discuss what to do when the lookback contains no positive penetrations, nor does it assess gap risk, transaction costs, or whether the chosen parameters suit a particular market.

Key ideas

• The method measures upward and downward price penetration over a lookback window.
• A multiplier scales average penetration to set bullish and bearish stop levels.
• The bullish stop is placed below the current low, while the bearish stop is above the current high.
• Protected levels use recent stop values to constrain how the displayed stop changes.
• The document supplies no empirical results or guidance for choosing parameters across markets.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.