Silver has only broken a previous week's low three times this year and eight times since the low was established at $6.63 on the weekly chart back in August. This means that a trailing sell stop placed below the previous week's low has gone un-elected 80% of the time so far this year and 75% of the time since the weekly low was made in August.

What does this mean for traders? First of all, it gives you an ideal price level for trailing protective sell stops. If you are long this market, consider trailing your protective sell stops five or six cents below the previous week's low. If the market continues to make higher weekly lows this will allow you to theoretically reduce the risk on your long positions and/or lock in greater profits on the trade.

Secondly, by knowing the pre-defined exit level a trader can calculate potential risk parameters on a long silver trade before deciding to enter the market or add contracts to current positions. This could also be a deciding in factor in determining whether to enter on a break out or wait for a pull back to technical price support levels.

If the sell stops get elected, you could re-enter the long side of the silver market if it reverses and trades back above a previous week's high. If filled, go back to trailing your protective sell stop five or six cents below a previous week's low. This will allow you to get back in the silver market if the trend is re-established.

Most importantly, be prepared for nasty slippage on fills and huge gap openings! This is bound to happen one day since silver is so volatile and high-priced. Silver could peak out near seventeen dollars some day and you may have your sell stop placed just below the previous week's low of $16.40. While you THINK your stop is sixty cents away, the market may open substantially lower at $16.00 the next day. Adding insult to injury, you could get so much slippage that your stop doesn't get filled until $15.70! Because of this risk you need to make sure you are both financially and emotionally capable of trading a market like this.

Disclaimer: There is risk of loss in all commodity trading. The data contained are believed to be reliable, but have not been independently verified by Pearce Financial. Accordingly, such data cannot be guaranteed as to reliability, accuracy, or completeness, and as such are subject to change without notice. Pearce Financial will not be responsible for any indirect, compensatory, or consequential damages, including loss of profits which may result from reliance on this data. Pearce Financial and/or its Principals and employees may or may not follow strictly any or all of the trading recommendations contained herein. The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results.

© 2006 Pearce Financial, LLC
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