Breakeven Stops

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HWG
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Breakeven Stops

Post by HWG » Fri Jul 26, 2013 10:19 am

I'm trading a system on stocks currently that has some interesting stop placement.

It's essentially a breakout system that risks 2ATRs initially but the stop is moved up to breakeven after the first day with the reasoning that if the stock is truly breaking out it should be in profit on the first day (or essentially immediately) and not back into a congested area. If the stock is not in profit after the first day then an exit is triggered.

This obviously causes a lot of whipsaws but the losses are very small.

The problem I'm having is that by doing this you're basically saying your entry price is significant and the market cares about that level which I know is not true. I don't have a problem with the small losses but have to also get back in if the stock moves to another breakout level. Occasionally I've been stopped out for small losses only to see the stock rip higher before I can get back in.

Just wondering what anyone's thoughts are concerning this method.

sluggo
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Post by sluggo » Fri Jul 26, 2013 12:34 pm

Suppose we call your current trading strategy "A". Suppose your programmer coded up two variations: "B" which moves the stop up to breakeven after 3 days, and "C" which moves the stop up to breakeven after 3000 days, i.e., never.

Suppose you used 1/3rd of your capital to trade "A", another 1/3rd of your capital to trade "B", and 1/3rd of your capital to trade "C". Suppose you made a Trading Blox "Suite" containing A, B, and C; and suppose you made equal risk allocations to all 3 strategies.

Would you like the results obtained from this blend of strategies?

HWG
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Post by HWG » Fri Jul 26, 2013 2:22 pm

sluggo wrote:Suppose we call your current trading strategy "A". Suppose your programmer coded up two variations: "B" which moves the stop up to breakeven after 3 days, and "C" which moves the stop up to breakeven after 3000 days, i.e., never.

Suppose you used 1/3rd of your capital to trade "A", another 1/3rd of your capital to trade "B", and 1/3rd of your capital to trade "C". Suppose you made a Trading Blox "Suite" containing A, B, and C; and suppose you made equal risk allocations to all 3 strategies.

Would you like the results obtained from this blend of strategies?
I suppose that would be of use to see.

Moto moto
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Re: Breakeven Stops

Post by Moto moto » Sat Jul 27, 2013 4:26 am

HWG wrote: The problem I'm having is that by doing this you're basically saying your entry price is significant and the market cares about that level which I know is not true. I don't have a problem with the small losses but have to also get back in if the stock moves to another breakout level. Occasionally I've been stopped out for small losses only to see the stock rip higher before I can get back in.

Just wondering what anyone's thoughts are concerning this method.
Your entry price is significant to you - the rest of the market does not care, and it does not matter - you are simply trying to get on a breakout and hope that particular breakout never retraces.....a more important level is what you do with the trade, and as you mention where you re-enter.

If you think that the breakout is a significant level how would the same system go against a random entry.....or alternatively a fixed entry - you are long for any breakout about a certain price. Short for any breakdown below a certain price.

Your issue with missing the trade is the important part for my thinking. Essentially I view breakout trades as a way to never miss a trade. There are other ways to enter a trade and manage it like its a long term trend trade....but there is no guarantee you ever get on.

Do as Sluggo suggests and try other variations - do you like it???????

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