Breakeven Stops
Posted: 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.
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.