THE BREAK-EVEN STOP: ONE OF A SHORT-TERM STOCK TRADER'S WORST FRIENDS, one traders story....
Hi Steve, and congrats on your new thread and service. Would never suggest fixing anything that isn't broken and if a break-even stop works, that by all means keep doing it. However, the strategy has never worked for me and here is why in my own personal experience:
Two years back I was hot on the prospects of Excel being a take-over target. If memory serves me correct, stock was trading around 31-33 range. I loaded up convinced that my hard research would pay off, though decided to put a safe stop around 27.75 A few days later INTC makes the announcement and everyone on my site who participated benefited but one, me. A day or two before the announcement, only one trade went through below 30, 800 shares@27$, mine. A bit later in my trading career, there was speculation of a NewBridge Network acquisition, again I guessed it right: ragingbull.lycos.com
and again was sitting back, ready for the big pay off.
Stock trading $24-25 US. My stops kicked in (or me out) at $22, only to leave thousands on the table as ALA announced the takeover at a 1:1 stock swap, price of $36. (After those two experiences I never again used a stop).
Fast forward to the "day trade".
Same set up in micro, lets take Friday as good example as any. Alternative fuels are hot and everyone is scrambling for sympathy plays. Message 15820480
I am long EFCX and looking for another one. CNBC plug for BCON as stock is moving through $3.65. LTD order at 3.80 is rejected so I go mkt small lot. (Rule number one, no more then half the shares until first pullback on a 'scalp play'). Stock continues to move up through 4 and tops off at 4.11 which of course is what the MM decides I deserve. Now a bit of selling, as nervous hands (and those with tight stops get booted). 2nd rule, add into the first dip (10-20% retracement of first move). Stock moves back to 3.85, which is where I get my second fill. I had absolutely no consideration to stop, only to add to my position. In general, I suggest if the stock is already moving, sit on your hands and wait for the next pullback. And again, grab 1/4 to 1/2 half of what you feel is your final allotment. If it never again retreats, fine, congrats you made out like a bandit, if it pulls back, great, time to get the second fill. In talking with 100s of traders, this strategy, once understood and properly used have turned countless losers into winners - I have 100s of letters from friends at SI, WSS, Ragingbull and a few P-sites among them who attest that this is the number one strategy that turned them around from consistent losers to stellar day traders.
Once again, no one method works for all traders, and your experience may certainly dictate vastly different and still profitable results.
I look forward to reading more from your site and will also check out your private site at intraday investments.
Hope to participate and look forward to future trading strategies.
Good luck,
Sharck |
