2016issue C0533-38
Process-first swing trading and the break-even stop
A historical Swing trading workflow treats methodology, psychology, and money management as one procedure, then joins trend identification, a first-pullback entry, and a Break-even stop so the work can be judged by rule-following rather than by any single outcome.
- A complete trading procedure is treated as three inseparable parts: methodology, psychology, and money management, so improvement in any one part is expected to strengthen the others.
- The intended Swing trading sequence is to identify an existing or emerging trend first, wait for a pullback, and then look for a bounce back in the trend direction rather than predicting distant price levels.
- Once an initial swing target equal to the original stop distance is reached, half the position is exited and the remaining stop is raised to a Break-even stop before any wider trail is used.
- The procedure is judged by whether entry, exit, and abstention rules were followed, not by whether a correctly executed trade happened to lose money.
One procedure, three parts
A complete trading procedure is treated as three inseparable parts: methodology, psychology, and money management. Improvement in any one part is expected to strengthen the others.
The workflow described here includes a Swing trading sequence, a Trading psychology process for reviewing whether rules were followed, and a Break-even stop after the first scale-out.
The intended swing sequence
The intended Swing trading sequence is to identify an existing or emerging trend first, wait for a pullback, and then look for a bounce back in the trend direction. Distant price levels are not the object of the setup.
Two emerging-trend setups
One emerging-trend setup, called a first thrust, is defined as a sharp move off a major multiyear or all-time low. After that move, the first minor pullback is the intended entry.
A second emerging-trend setup, called a bowtie, is defined by a 10-day simple moving average crossing a 20-day and 30-day exponential moving average within about three to four bars. After that cross, the first signs of a pullback are used for entry.
Scale out, then use a Break-even stop
The process is designed so that once an initial swing target equal to the original stop distance is reached, half the position is exited and the remaining stop is raised to break-even before any wider trail is used.
Raising the stop to a Break-even stop after that first scale-out is framed as converting a remaining swing position into a longer hold only if the trend continues, while still keeping a bounded outcome if it does not.
Process review as the diagnostic
Process review is used as the diagnostic. Common failures are listed as not honoring stops, taking mediocre setups, overtrading, and taking day trades when the intended horizon is a position trade.
A correctly executed trade that loses money is not, by itself, evidence that the procedure failed.
All readings on this track · 9 readings
- 1986The stop, the size, and the acceptable loss as one pre-entry gate
- 1988Opening range breakout, stretch preference, and timed stops
- 2002Six-week reversal candles, next-week entry, and a break-even stop
- 2013Hard stops and small bets to keep a portfolio alive
- 2014Bounding losses with stops, leverage and break-even exits
- 2016Process-first swing trading and the break-even stop
- 2018Credit-spread risk budget beyond support
- 2019Break-even stops require a new invalidation
- 2020Momentum scale-in and midpoint break-even stops