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My question is does one place a buy stop order at the breakout price to enter or should one wait ..

I am studying P&F charts. I understand that the most common buy signal is the double top breakout buy. My question is does one place a buy stop order at the breakout price to enter or should one wait and enter after the breakout has occurred and then enter a buy order.
Thanks for your attention.
--six
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Best Answer

  • Accepted Answer
    Good question. I don't believe I've ever seen any author (of books about P&F charting) address this question.

    My 2 cents worth (this is what I would do if I were you) would be to split my funds into 2 portions.
    50% would be for "placing a buy stop order at the breakout price to enter" and 50% would be to "wait and enter after the breakout has occurred and then enter a buy order".

    This will help me to understand my own emotional response. Which entry method better fits my temperament.
    My anecdotal observations suggest that buying on the breakout is more reliable and profitable. But it's a real struggle for me to execute and maintain discipline once the trade is executed.

    Simple does not mean easy.

Answers

  • sixsix
    petero1298
    Thank you so much for your thoughtful and helpful answer to my question regarding P&F double top breakout buy signals.
    --six
  • I realize that this is an old thread/post. The best method for buying pretty much anything is as Markd described. The pullback is where you will make the most money and have the lower risk. The breakout is where you will have a lower profit, compared to the pullback, at a higher risk. This, of course, assumes that there is a pull back. If there is none, then you have a partial position that has an opportunity to outperform the non-existent pullback buy.

    I don't recommend buying a simple double top pnf buy signal. You need to view the larger picture and see where the stock is at in relation to trendlines and trend channels. A buy signal does not always mean to buy. It's just a name that is applied to a pattern. Some of the "masters" of point and figure identified certain sell signals as being optimal places to look for entry. I use pnf charts pretty much exclusively for making decisions. With StockCharts, you have the ability to also add moving average lines to the pnf charts. An excellent way to see the trend is using multiple moving averages. Any SMA below 6 is short term, 6-10 is intermediate, 11-15 is longer term intermediate and 16-20 is long term. As I'm more intermediate, I tend to use 6, 8, 10, 12, 14 on the charts.

    Learning the nuances of Point and Figure takes time. I have been a student since 2009 and continually learning. It's been a worthwhile and profitable study. I use a variant of the CSS Strategy for Point and Figure Charts. It's designed to look for securities where supply (selling) is quite obvious and then stalking when demand starts to creep into the chart through various patterns and interpretations. Brian Randall created the strategy and describes it this way "My Consecutive Sell Signal (CSS) Strategy for buying individual stocks adheres in many ways to what the famed market technician, Justin Mamis, wrote in his book, The Nature of Risk (1991):

    “If we want to buy down-and-out stocks we must wait for the market to tell us the risk has gone out of the stock, and the way we learn that is when the stock refuses to go down any more on bad news. You don’t guess, estimate, daydream; you don’t need to rely on faith, hope or charity; you can wait for the market to tell you. It is worth repeating yet again, that for those with patience, this is the least risky long-term style of buying stock.”



  • @lmkwin May I ask where is @markd 's description you mentioned?

    "I realize that this is an old thread/post. The best method for buying pretty much anything is as Markd described".
  • Sorry, should have wrote "petero1298" in there instead. "The best method for buying pretty much anything is as petero1298 Markd described"
    Excellent response by petero1298
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