Wiggle Room

Wiggle room is the technical term *ahem* for the distance between the current price and the stop loss price.

Even in strong uptrends, the price will often fall a bit before continuing up. That's known as a pullback, and pullbacks are immediately obvious after the price has continued its upward journey. In real-time though, while the price is currently going down, is that a pullback, or reversal? There is no way to know.

This has implications on where we put the stop loss. We need to both:

• Keep the stop loss far enough away so that these little pullbacks have enough room to move before the price resumes its upward journey; and
• Keep the stop loss close enough so that we keep as much as the profit as possible if this is an actual reversal and a downtrend begins.

How much wiggle room you give the price is a balance between these two objectives. And that's how charting the backtest results can improve your results - the amount of wiggle room is clearly visible and you will be able to tell if you are placing the stop loss too close or too far away.