Yep! Another question about Breakeven Triggers...

[Scrittitrader]

Hi all - I need help developing a strategy for moving my initial stop to breakeven.

In the perfect world, your initial buy entry point is the same thing as your breakeven.

Having said that, when I am long a stock, I would never move my initial stop up to my initial buy entry point as I might be stopped out too quickly. I no like that.

So let's assume my initial stop is $19.50 and my initial buy entry is $20.

Now here is what I do - I calculate the distance between my initial stop and buy entry point ($20 buy entry - $19.50 stop = .50 cents) and I then add .50 cents to my initial buy entry point ($20 + .50 cents = $20.50) to create my new breakeven TRIGGER point - $20.50.

In this example, as soon as my stock reaches $20.50, I move my orig stop ($19.50) up to my initial buy entry point ($20). My thinking is that the stock can now (in the worst case scenario) retrace .50 cents back to $20 (both my initial buy entry and my new stop) and if it hits $20, I won't lose money. I'll break even.

BUT...If I wait for the stock to trade all the way up to $20.50, sometimes the trade goes against me. For example, say the stock only trades up to $20.45 and then retraces all the way back down to $19.50 quickly - in that case my system fails, and I'm stopped out for a loss - which sucks.

Should I be more aggressive about determining my Breakeven TRIGGER? Maybe instead of basing my trigger on a .50 cent difference, I could have instead used a .25 cent difference (and thus a new breakeven TRIGGER point of $20.25), in which case I would have avoided the unnecessary loss mentioned above?

I realize breakeven triggers are often determined by each stock's volatility - such as the ATR - or support and resistance points.

In the end, I would just like to hear how other traders define

a) breakeven (what exactly is breakeven to you? - just covering your commission fees?)

b) how they determine their breakeven TRIGGER point to spring into action and move their stops up.

I can't really find any information on-line about establishing breakeven triggers - that's odd, no?

I am not familiar yet with pips and forex (newbie alert), so it would be helpful to limit your examples to stock trading. Thanks and I really look forward to your feedback.

 

[MVPt2w]

hi Scrittitrader,
first things first, what kind of day trading do you intend to do or are you doing currently?
if you are the type who does like 10 or 25 trades a day, then commissions and stuff like that will bother you a lot which calls for tighter SLs. but i would anyday recommend a trading style where you do just less than 5 trades a day and limit it to only very liquid counters so that you can keep a tight SL trigger price and limit price and still get away with it without price jumping your tight trigger and limit price.

the 2% rule is a nice guide for beginners in stock trading. never lose more than that in a day because its hard to get it back and drawdown effects could be really bad on you. usually, i have followed and seen experts keeping a 1% or 2% as intraday SLs and on achieving a similar profit, revising your SL to cost can really come in handy. but for big ATR trades, the band can be a bit wider too and so could be the targets. thus, 50% of your price objective (PO) of the trade being achieved, you may revise your SL to cost and price moving above 50% of the PO, again revise SL to 0.5 to 1% above cost to save your capital the best.

Good Luck!

 

[Scrittitrader]

Thanks for the response - I am a swing trader (3 - 5 days max) and I am well-versed on money management and the 2% rule.

Thanks for your response - anyone else care to weigh in on breakeven triggers?

 

[MVPt2w]

sorry to barge in again. the 2% rule for swing trading of 3-5 days is not ideal. when holding positions for that kinda duration, SLs could be in the range of 4-6% or even more as 2% SLs will get disturbed easily on any unfavourable gap up or gap down opening itself.

 

[Scrittitrader]

Hmmm....I did just find this tidbit....Breakeven stop - this is calculated on the entry day and is implemented when the stock passes a "transition point". (eg. Move my initial stop to a breakeven stop when the price closes 2 ATRs above my entry price). I believe this transition/breakeven stop was part of the original Turtles trading technique.

Anyone else? I'd love to hear how you folks determine when to tighten things up a bit....

 

[wackypete2]

Stoploss management is different for day traders and swing traders. The advantage of day trading is that you can always re-enter your position if you get stopped out and conditions are still valid or set up again.

As a day trader I want to avoid too many losses so I keep stops tight and continue to tighten rather quickly. The premise is if price isn't moving in my direction then I want out (even exiting before stop is hit sometimes) and look for another opportunity. There's no set formula that determines when/where to move stops, I just watch the price movement and remember the goal is not to be right on every trade but to be in the black at the end of the day.

Peter

 

[bbmac]

A Suggestion

This is one way of doing it.

If you go long at point a, drop down a time frame and when price retraces from a point b (as it inevitably will do at some point) wait for a point c to form and then price to close above that point b - at this time move your stop to B/E. When price pulls back from a point d to point e and then closes above point d then stop can be moved to just below point c and so on...

This assumes your long trade is good and price does indeed go north.

Vice versa for a short trade.

Just one way of doing it.

G/L