Chart Stop

In a chart stop, the trader will place the stop loss order not at a price point, but at a chart point which may be static or dynamic. For instance, a stop loss order may be placed at a fibonacci level, which would be a static value. On the other hand, the trader may use an API (an automated trading system), or mentally prepare himself to close the position if a technical event, such as a crossover, a breakout, or divergence occurs, which would constitute a dynamic stop-loss point. In all these cases, technical analysis generates the triggers and determines the price where the position must be closed.
The chart stop is more flexible and reliable than a direct equity stop, because it adjusts to price action and volatility, and is therefore somewhat independent of the random movements of the price. The problem with the chart stop is twofold. First, the technical indicator used to generate the signals may fail to capture the change of the market trend, resulting in large losses. The other, and obvious problem is related to the indirect character of the stop-loss mechanism. Because the order is independent of the price, it may not be able to cut losses as effectively as a direct equity stop, and larger than expected losses may materialize as a result