Wide or Tight Stop Losses for Breakout Trading

[Saigyou_123]

For a while, I have attempted to trade breakouts (unsuccessfully).

For a certain crypto that is priced at around 0.10, and which has ranged from 0.08 to 0.20 in the past few months, my method is:

(a) Let's say that the price is in consolidation, and let's say, based on volume analysis, I have reason to believe that the price may break out of the range. Let's say that the price is currently hovering around 0.09850.

(b) I would set a stop entry at 0.09925 with a limit at 0.09950. My reasoning is that, if the price can break out of 0.09900, then it would likely go up to 0.10000. (My theory is that each .00100 mark is a kind of support or resistance.)

(c) After entry, I would set a stop loss at 0.09870. (I feel that if price hits 0.09870, then my thesis would have failed. Sometimes, I set my stop losses at the 0.00050 (e.g. 0.09850) or 0.00065 (e.g. 0.09865) mark instead, but I feel that the risk-reward ratio would be wrong.)

(d) If price goes up to 0.9980, then I would move my stop loss up to 0.09950. Due to fees and commissions, this is technically not break-even. However I feel that this reduces my potential loss significantly.

(e) Then, if price goes quite a bit beyond 0.10000, I would move my stop loss up to 0.9980 or 0.10000.

(f) Then, I wait.​

It seems to me that a tight stop loss is required for breakout trading, as breakouts often fail, and, without a tight stop loss, the losses will add up very quickly. This is why I have, to date, used a tight stop loss set at an arbitrary price, e.g. at the .00070 mark.

I have often been stopped out of big moves. In those cases, I would watch price movement to see if the downward movement has stopped and, if I feel it is appropriate to do so, enter again. In other cases, however, my system has saved me from considerable loss.

Most of my big losses have occasioned when I failed to follow my system. In those cases, I watch price fall while hoping without reason that price would go back up again.

I am surprised to read that in an online article, "Are you a breakout trader that looks for big moves to happen following a breakout of price and volatility for example? if that is the case than your stops should probably be very wide."

(https://www.financemagnates.com/tra...ight-stops-wide-stops-which-one-should-i-use/)

If stop losses are set based on price structures (e.g. support and resistance), or if wide stop losses are used, wouldn't losses accumulate to an intolerable extent in breakout trading?

I am not successful at breakout trading yet. Therefore, my question has two parts:

(a) What am I doing wrong with the method described above?

(b) How should one set stop losses for breakout trading?​

 

[thehung111]

• If you set a tight SL, you will lose more often but your loss would be small
• If you set a wide SL, you will lose less but when you lose, you will lose a lot more

As for breakout trading, I would recommend to wait for confirmation i.e. at least 2 candles after the first candle. If they do not come back in the range, then you can hit buy.

For setting stop loss, set to most recent swing low(s) , high(s) depending on your risk tolerance. Wider stop would allow you to win more often but it can be a lot when you lose. It is all a trade off.

 

[fan27]

For a while, I have attempted to trade breakouts (unsuccessfully).

For a certain crypto that is priced at around 0.10, and which has ranged from 0.08 to 0.20 in the past few months, my method is:

(a) Let's say that the price is in consolidation, and let's say, based on volume analysis, I have reason to believe that the price may break out of the range. Let's say that the price is currently hovering around 0.09850.

(b) I would set a stop entry at 0.09925 with a limit at 0.09950. My reasoning is that, if the price can break out of 0.09900, then it would likely go up to 0.10000. (My theory is that each .00100 mark is a kind of support or resistance.)

(c) After entry, I would set a stop loss at 0.09870. (I feel that if price hits 0.09870, then my thesis would have failed. Sometimes, I set my stop losses at the 0.00050 (e.g. 0.09850) or 0.00065 (e.g. 0.09865) mark instead, but I feel that the risk-reward ratio would be wrong.)

(d) If price goes up to 0.9980, then I would move my stop loss up to 0.09950. Due to fees and commissions, this is technically not break-even. However I feel that this reduces my potential loss significantly.

(e) Then, if price goes quite a bit beyond 0.10000, I would move my stop loss up to 0.9980 or 0.10000.

(f) Then, I wait.​

It seems to me that a tight stop loss is required for breakout trading, as breakouts often fail, and, without a tight stop loss, the losses will add up very quickly. This is why I have, to date, used a tight stop loss set at an arbitrary price, e.g. at the .00070 mark.

I have often been stopped out of big moves. In those cases, I would watch price movement to see if the downward movement has stopped and, if I feel it is appropriate to do so, enter again. In other cases, however, my system has saved me from considerable loss.

Most of my big losses have occasioned when I failed to follow my system. In those cases, I watch price fall while hoping without reason that price would go back up again.

I am surprised to read that in an online article, "Are you a breakout trader that looks for big moves to happen following a breakout of price and volatility for example? if that is the case than your stops should probably be very wide."

(https://www.financemagnates.com/tra...ight-stops-wide-stops-which-one-should-i-use/)

If stop losses are set based on price structures (e.g. support and resistance), or if wide stop losses are used, wouldn't losses accumulate to an intolerable extent in breakout trading?

I am not successful at breakout trading yet. Therefore, my question has two parts:

(a) What am I doing wrong with the method described above?

(b) How should one set stop losses for breakout trading?​

If you are seeking to capture a big move, one option is to scale into your position where 1/3 of your position could happen before breakout, 1/3 at break out and 1/3 as it continues in your favor. Since you are starting with a smaller position, your stop could be wider.

 

[Trader Curt]

There's a lot of manipulation with crypto. And most exchanges and big players know where everyones stop is at and for some unknown reason they always get triggered before shooting to the other direction.

My advice is to use a phone alert system instead of a stop. Unless of course you are ready to take profits.

 

[tomorton]

• If you set a tight SL, you will lose more often but your loss would be small
• If you set a wide SL, you will lose less but when you lose, you will lose a lot more

As for breakout trading, I would recommend to wait for confirmation i.e. at least 2 candles after the first candle. If they do not come back in the range, then you can hit buy.

For setting stop loss, set to most recent swing low(s) , high(s) depending on your risk tolerance. Wider stop would allow you to win more often but it can be a lot when you lose. It is all a trade off.

I agree with your points, except that wide stop-losses mean larger losses. Once you know the distance between your entry and stop-loss you can adjust the size of the position, so that e.g. its more pips but fewer £ per pip, leaving a risk exactly the same as when a tight stop is set. With a wide stop-loss its even possible to set it so wide that it allows for a visible deterioration in TA features that could justify a manual exit.

 

[thehung111]

I agree with your points, except that wide stop-losses mean larger losses. Once you know the distance between your entry and stop-loss you can adjust the size of the position, so that e.g. its more pips but fewer £ per pip, leaving a risk exactly the same as when a tight stop is set. With a wide stop-loss its even possible to set it so wide that it allows for a visible deterioration in TA features that could justify a manual exit.

yes completely agree. To use a wide stop, the initial position size must be small. Otherwise , the loss would be devastating if it happens.

 

[murray t turtle]

I agree with your points, except that wide stop-losses mean larger losses. Once you know the distance between your entry and stop-loss you can adjust the size of the position, so that e.g. its more pips but fewer £ per pip, leaving a risk exactly the same as when a tight stop is set. With a wide stop-loss its even possible to set it so wide that it allows for a visible deterioration in TA features that could justify a manual exit.

%%
Good points.
Depends on what someone is trading. Tight stops on a good/ but wide trender like TQQQ would most likely be counterproductive. Something more orderly would like SPY, that pays dividends tight stops could work well/its the liquidity leader+ plenty of volume.
Most scale ins pay better\ but my comments may not apply to short term trading........

 

[KCalhoun]

I trade instruments with wide range using tight stops

 

[Specterx]

For a while, I have attempted to trade breakouts (unsuccessfully).

For a certain crypto that is priced at around 0.10, and which has ranged from 0.08 to 0.20 in the past few months, my method is:

(a) Let's say that the price is in consolidation, and let's say, based on volume analysis, I have reason to believe that the price may break out of the range. Let's say that the price is currently hovering around 0.09850.

(b) I would set a stop entry at 0.09925 with a limit at 0.09950. My reasoning is that, if the price can break out of 0.09900, then it would likely go up to 0.10000. (My theory is that each .00100 mark is a kind of support or resistance.)

(c) After entry, I would set a stop loss at 0.09870. (I feel that if price hits 0.09870, then my thesis would have failed. Sometimes, I set my stop losses at the 0.00050 (e.g. 0.09850) or 0.00065 (e.g. 0.09865) mark instead, but I feel that the risk-reward ratio would be wrong.)

(d) If price goes up to 0.9980, then I would move my stop loss up to 0.09950. Due to fees and commissions, this is technically not break-even. However I feel that this reduces my potential loss significantly.

(e) Then, if price goes quite a bit beyond 0.10000, I would move my stop loss up to 0.9980 or 0.10000.

(f) Then, I wait.​

It seems to me that a tight stop loss is required for breakout trading, as breakouts often fail, and, without a tight stop loss, the losses will add up very quickly. This is why I have, to date, used a tight stop loss set at an arbitrary price, e.g. at the .00070 mark.

I have often been stopped out of big moves. In those cases, I would watch price movement to see if the downward movement has stopped and, if I feel it is appropriate to do so, enter again. In other cases, however, my system has saved me from considerable loss.

Most of my big losses have occasioned when I failed to follow my system. In those cases, I watch price fall while hoping without reason that price would go back up again.

I am surprised to read that in an online article, "Are you a breakout trader that looks for big moves to happen following a breakout of price and volatility for example? if that is the case than your stops should probably be very wide."

(https://www.financemagnates.com/tra...ight-stops-wide-stops-which-one-should-i-use/)

If stop losses are set based on price structures (e.g. support and resistance), or if wide stop losses are used, wouldn't losses accumulate to an intolerable extent in breakout trading?

I am not successful at breakout trading yet. Therefore, my question has two parts:

(a) What am I doing wrong with the method described above?

(b) How should one set stop losses for breakout trading?​

Here's the problem with your strategy:

There are millions of people identical to yourself trying to make money by point-and-click trading off exactly the same squiggly lines and chart points.

 

[Handle123]

You can learn how to hedge, if backtesting shows more loses than profitable trades, buy more options so you be profitable on losing trades and when you score with profitable underlying, you get rid of hedge in first couple of days. Insurance is not free, but makes no sense to take so much risk when I can take a overall profit on a losing trade on underlying.