Educational -- Pro-Cyclical Breakout Strategy on SBUX Daily
For this Educational Post I chose a random date in the chart for SBUX (around 02/2013). The reason I chose SBUX is because this strategy is best used when an instrument is strongly trending as SBUX has been for several years
(See weekly chart linked below for a view of this longer term trend).
With the knowledge of this strong trend prior to my starting point, I was confident that using the B.O strategy provided by MaryJane in her "Introduction to the 1-2-3 Trading Pattern" post (linked below) would have great success. I have illustrated the trades which would have been taken above (criteria was a close above the first ,,2").
The strategy was as follows:
Buy the breakout if the close is the previous ,,2" high, illustrated by each green line. Upon each close above this line I will also move stops below the previous low (illustrated by red horizontal ray).
At each successive breakout, trail stops of ALL positions to the previous swing low (highest possible red ray).
Continue to buy each breakout until the market takes you out at the trailing stop loss. At this point one should look for trend change or correction/consoldation pattern and change to either selling the breakouts or a ranging market strategy)
After the first 6 trades had been taken the average price was $31.88. When price broke and closed above this level on 10/16, stop losses moved up to 37.21 and the average price of the now 7 positions was only 32.95. So by this point roughly 7 trades had been taken in 7 months, and the portfolio is guaranteed to return at least 13% over these 7 months (with more upside possible as long as the trend continues!)
You can continue scrolling over to the right and trying this drill yourself! I will add some more snapshots of the continuation of this strategy below.
(See weekly chart linked below for a view of this longer term trend).
With the knowledge of this strong trend prior to my starting point, I was confident that using the B.O strategy provided by MaryJane in her "Introduction to the 1-2-3 Trading Pattern" post (linked below) would have great success. I have illustrated the trades which would have been taken above (criteria was a close above the first ,,2").
The strategy was as follows:
Buy the breakout if the close is the previous ,,2" high, illustrated by each green line. Upon each close above this line I will also move stops below the previous low (illustrated by red horizontal ray).
At each successive breakout, trail stops of ALL positions to the previous swing low (highest possible red ray).
Continue to buy each breakout until the market takes you out at the trailing stop loss. At this point one should look for trend change or correction/consoldation pattern and change to either selling the breakouts or a ranging market strategy)
After the first 6 trades had been taken the average price was $31.88. When price broke and closed above this level on 10/16, stop losses moved up to 37.21 and the average price of the now 7 positions was only 32.95. So by this point roughly 7 trades had been taken in 7 months, and the portfolio is guaranteed to return at least 13% over these 7 months (with more upside possible as long as the trend continues!)
You can continue scrolling over to the right and trying this drill yourself! I will add some more snapshots of the continuation of this strategy below.
Comment:
Just realized I missed at least one big breakout trade on 09/11/2013. It changes the end results a bit, but still resulted in a successful trade to make it 8 in a row on this idea!
In case you were thinking I got lucky with the time period I chose to do this educational post, where is the daily chart from a longer term view. The yellow vertical lines are where each buy in the idea above was triggered :)