Lessons from a Breakeven Trade

09/21/2012 9:00 am EST


Jeff White

Founder, TheStockBandit.com

Tempted to give his methodology some slack when a trade didn't move the way he expected, Jeff White stuck to his guns...and was glad he did.

This is a trade review of a play which actually yielded nothing—but there were some good lessons tied to it. Plus, I certainly wouldn’t be bragging about a breakeven trade.

The Setup
Let’s go back to August 12, the day I originally listed Amgen (AMGN) for a swing trade buy. The stock had outperformed the NAZ since June 11 with a 22% gain (vs. the NAZ up 7.5%). It clearly had momentum and had been able to put in some well-deserved rest for two weeks.

I noticed the descending trend line from the high, and set up a buy upon a break of that trend line at $83 and shared it with subscribers. Here’s a look at the chart of AMGN when I set up the trade:

Click to Enlarge

That buy triggered on August 14, and over the next few weeks the stock grinded higher but never really gathered momentum. Three times it posted a new 52-week high, only to immediately hesitate afterward.

Having sat in AMGN for a few weeks with limited progress, I tightened my stop-loss from $80 (initial stop) to $82 on September 3 in order to reduce risk. The stock had just completed a multi-day pullback, and it was appropriate to tighten up after strength returned.

I tightened it again to $83 a week later, after the stock had tagged the prior high to the penny, only to reverse lower. This looked ominous, so I tightened to my breakeven. The AMGN chart with my stop adjustments along the way:

Click to Enlarge

Next: This gave the stock a little wiggle room


This gave the stock a little wiggle room to keep me in the trade should it turn back up, but it eliminated my effective risk in the trade. A stop-out wouldn’t pay me a thing, but for a trade which never took off, neither would it cost me anything.

The Exit
I was taken out of the AMGN position at $83 on Wednesday, and since then the stock has broken down further with a solid breach of the multi-week uptrend line. Where it goes from here, I don’t know, but I sure don’t view this action as bullish...so I’m out. Here’s a look at AMGN as it currently stands:

Click to Enlarge

On some trades, breakeven isn’t bad. You enter a great setup, you give it room, you stay patient, and it just doesn’t ever get going. This was one of those.

Hopefully by looking back at this trade, it’ll help you manage your next position better when it acts sluggish. If you’re seeing modest rewards but after ample time you’re really not getting paid, tighten up. Odds are if it turns lower, you’ll be glad you did.

Jeff White is a trader and blogger at The Stock Bandit.

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