Furthermore, the approach enables sophisticated stop placement. Shannon advises placing initial stops not on the execution time frame, but one level higher . For a trade based on the daily and 60-minute charts, the stop should sit below the nearest daily support level, not just below the 5-minute low. This gives the trade “breathing room” to withstand normal intraday volatility while invalidating the trade only if the intermediate trend breaks.
If you enter on a lower timeframe, manage your initial stop based on that timeframe's structure (e.g., just below the most recent higher low).
Shannon's methodology centers on the idea that every security moves through four distinct stages: Stage 1: Accumulation