[isatrader]

Hello, great site, very useful for someone getting into using weinstein methods. My question relates to the use of stop orders in conjunction with weinstein strategies, a lot of trading and investing books recommend using stop on quote orders but I have a hard time trusting their use, so I was wondering how others handled using buy stops as advocated by weinstein. The reason i don't trust; I was looking at ISLE as a possible continuation buy due to my interpretation that it had broken out on 1/27 from a 9 month consolidation pattern then gone into another pennant like consolidation. I set a stop at 9.31 last weekend, with a limit of 9.5 to protect me from getting in at market after a large up gap. THe stock had closed at 9.09 friday, opened 9.02 monday, but my stop triggered and I was in for 9.07. Thankfully I had my eye on my account, and got out of the position with .5% loss as the stock went on to register about a 10% loss over next couple days. Inquiring with my brokerage they reported that the stock had an offer of 9.99 over the weekend and therefore my stop was hit. So how do you weinstein vets use stops buy or sell, when either trying to capitalize on a move from Stage 1b to 2a or protecting capital with sell stops. Do you not use them, only have them in place during trading hours, etc? Read a book on trading by O'Conner that posits sell stops shouldn't be used at all as market makers know where they are and go after them. Given that brokerages trigger stops based on National Best Bid Offer prices, couldn't any punter put in an out of line bid or offer on one share to trigger any stops out there which seems to be the case in the above example? Wasn't sure where to turn for answers to these questions so I'd really appreciate any input. Thanks

Hi boondock, welcome to the site and thanks for the question.

Last year I did a brief Q&A with Stan, and he said the following:

ME
Q. The book had a whole section on buy-stop orders, which I presume has been dropped over the years due to false breakouts that you would get these days? As I read your Technically Speaking interview from 1997 in which you were talking about buying a strong close above the breakout level, and also note in the GTA reports I’ve come across that you always say something like “A breakout (on a closing basis) above that level would be the signal to do buying”. So I’m assuming that the buy-stop section from the book is now void, and that we should be looking to buy breakouts near the close of the day if they are above the breakout level and towards the high of the day?

Stan Weinstein
A. Because of the increasing amount of false breakouts, investors should only do buying when they see that the breakout isn’t false (and that it closes above the given level). However, a trader should do at least partial buying on an intraday basis when it breaks out above the given level (using a buy stop order), and then if at the end of the day it turns out to be false and it closes back below the level, then traders should immediately get out. But if not false and it hasn’t run too far, then later in the session, traders too can do additional buying.

Personally I don't use buy-stops and don't know many that do on here as you have a much higher risk of a false breakout, but one suggestion that might be of use is to set up alerts, that will be triggered when a price level you are watching is reached instead, as that way you can enter a partial position manually once you've checked the chart, and then monitor it until near the close, which if still strong and hasn't run too far above the breakout level then you can do additional buying as Weinstein said in his answer.