Entry idea: buy (or sell) stop order above (or below) a range

[Holey Grail]

I have an idea (which to my knowledge is original) that I haven't fully investigated yet--at this point I'm convinced it's either sheer genius or absolute lunacy.

I'm thinking in terms of CL here--I don't think this would work at all in ES (etc.), and I don't trade stocks.

So here's the idea (phrased in long-only for ease of reading): enter a buy stop order below a range in an uptrend. If you get filled (how big's that if? I don't know yet), you have yourself a no-heat ticket on a train uptown. If you don't get filled, you don't get filled.

As an example, look at CL today--a buy stop at 89.53 at 7:56 central would've been pretty nice. On the short side, a sell stop at 90.56 at 11:03 central would give you only 6 ticks of heat on a monster down move. I realize that these are fairly precise timing parameters, but they are just to illustrate the point on a chart many here will have access to. I'd appreciate seeing examples where this leads to ruin if you find any.

Of course, if that quick break below the range that fills you is the real deal--a break in the uptrend--you are pretty well sunk, but the price action should give you a really quick indication of that. Maybe a protective measure would be to pre-enter a sell stop x ticks below the buy stop to exit (or reverse). I also am only thinking about this idea in clearly trending markets--I'm not talking about using this on either end of a solid 50-100 tick range.

So, what do you think, genius or idiocy?

 

[Holey Grail]

. . . and I screwed up the title. Could a mod fix? Supposed to be: Entry idea: buy (or sell) stop order below (or above) a range. Thanks.

 

[NoDoji]

Quote from Holey Grail:

enter a buy stop order below a range in an uptrend. If you get filled (how big's that if? I don't know yet), you have yourself a no-heat ticket on a train uptown. If you don't get filled, you don't get filled.

I'm confused. Do you mean a buy limit order? If there's an uptrend and then price establishes a range and you enter a buy stop below the range, you're filled immediately (or maybe your platform asks if you really want to place a stop order that will be filled immediately at market; I think I've seen a message like that when I've accidentally right-clicked instead of left-clicked).

Quote from Holey Grail:

As an example, look at CL today--a buy stop at 89.53 at 7:56 central would've been pretty nice. On the short side, a sell stop at 90.56 at 11:03 central would give you only 6 ticks of heat on a monster down move.

At 7:56 central price opened 89.59, dipped to 89.56 and closed 89.59. A buy stop placed @ 89.53 during that bar would fill immediately. A buy limit order placed at that price would fill during the 7:59 bar and as long as you had your protective stop in a reasonable place (89.37 for example, just below previous pivot low in the uptrend) you limit your risk in case the trend breaks down.

Your short example, same thing, you need a sell limit order not a stop order @ 90.56, and your protective stop would be up to you based on the loss you're willing to endure if the previous uptrend resumes off the pullback base that formed there. My personal 15-tick max stop would've survived both anticipatory limit entries.

Quote from Holey Grail:

Of course, if that quick break below the range that fills you is the real deal--a break in the uptrend--you are pretty well sunk, but the price action should give you a really quick indication of that. Maybe a protective measure would be to pre-enter a sell stop x ticks below the buy stop to exit (or reverse).

Absolutely enter your stop loss in advance because CL can slice through a level before you can blink and you don't want to be in the situation of seeing price 40 ticks against you and THEN deciding what to do.

Quote from Holey Grail:

I also am only thinking about this idea in clearly trending markets--I'm not talking about using this on either end of a solid 50-100 tick range.

So, what do you think, genius or idiocy?

I think it's an excellent way to trade CL in the direction of the trend and after observing over the past months how cleanly those levels are played, I believe it offers a very positive edge. In fact, recently I've placed a few trades that way. The downside is missing fills, but if that happens you can just jump in at market or place a stop order at the confirmation level to get you in.

 

[tomahawk]

I think it could work but you have to clearly define your filters for what is a trend.

For example, say CL opened and moved down 120-ticks and it's now retraced +.60 off the low and is consolidating just above the 20ema ... will you buy the breakdown or short the breakout? Or say after CL has rocketed up in the first hour and had 2 subsequent pushes further, each a little shallower than the previous, but still moving higher, would you buy a 12:15pm consolidation b/d?

Context is everything, IMHO.

 

[Holey Grail]

NoDoji--yes, I meant limit order. I guess I was thinking of the more usual case, where you place a buy stop above a range, so it's filled if price gets there. I want an order that gets filled only if price shoots down a little bit below the range, which as you point out is a limit order in this case.

Thanks for your input!

 

[intradaybill]

Problems will arise when the order gets filled and instead of a bounce the market dips more. How do you set the stops? This should be easy to backtest. I hardly see an edge here over the longer term. Maybe if you take a snapshot of markets it offers some edge.