Today's newsletter marks the conclusion of this mini-series. Throughout this series, we've covered stock screening using fundamentals, participation techniques with OHLC, Renko, and PnF charts, as well as trailing the stop loss using the 9-EMA rule on OHLC charts and the Supertrend indicator across all chart types.

In this final edition, we'll dive into the science of trailing stop losses on Renko using the Exponential Moving Average (EMA). We'll first explore why EMA is a valuable tool for trend analysis and then discuss how it can also be effectively used for trailing stop losses on Renko charts. We will also see how to trail the stop loss on PnF charts by only using pattern stop loss.

EMA: Simple yet essential

Exponential Moving Average is a very simple tool in technical analysis. A Moving Average (MA) is a statistical calculation used to analyze data over a specific period, helping to smooth out price fluctuations in financial markets. It is calculated by averaging a specific price point over a defined period, such as 10, 50, or 200 days. However, EMA’s calculation places more weight on the recent price points, thereby adjusting to the recent actions quickly.

The purpose of using the EMA is to assess the trend of a financial instrument. In an uptrend, the instrument tends to trade above its average price. This indicates the strength of the trend, as it shows the price is consistently staying above the stock's average. On the other hand, when the instrument is trading below its average price, it indicates that the price has lost its strength and may start a downtrend.

For Renko charts, the first swing breakout below the EMA line will be the trailing stop loss exit point. To Trail the stop loss,

1. Add Triple Moving Averages (20-, 30-, and 40-bricks) on the Renko charts.

2. Make a list of trades currently trading below the Triple Moving Averages.

3. Exit the trade when the price gives the first swing breakout.

Remember, The pattern stoploss, swing low in this case, is the initial stop loss. Only when the EMA lines surpass the initial stoploss, we start trailing. For this particular setup, we want the EMA lines to surpass the swing breakout levels to start trailing.

Examples on Renko charts

Here are some of the examples on how to trail the stoploss on the Renko charts using EMA lines.

Trailing the stop loss on PnF charts

In the newsletter on Point and Figure (PnF) charts, we discussed that a trade can be initiated at the first box above the high of the previous column of X, which represents the DTB value of the pattern. The initial stop-loss should be set at the low of the column of O of the DTB.

While using an EMA as a trailing stop-loss works well for trades held over several months, on PnF charts, it’s less effective for swing trading. In swing trades, the stop-loss is adjusted to the low of the column of O in the next DTB.

Look at the chart below of BEL. This is one of the examples we saw in the PnF newsletter. The line shows the DTB trade that would have been taken, and the arrows show the trailing levels of the trade.

With this newsletter, we wrap up the Trade the Swing series. Swing trading is just one strategy in a trader’s toolkit, and this series has only scratched the surface of technical analysis.

To take your skills further, join TNT One. Gain access to all current and future courses, plus weekly Art of Analysis sessions with Prof. Kaushik Akiwatkar for live market insights and doubt-solving. Elevate your trading with expert guidance and a community of like-minded traders.

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