breakout vs trend

[Minstrel]

Ok, first post.

Before starting to have doubts about trend following systems, I tried to follow the trend almost mechanically using my indicators (EMA's and ADX) with little emotion involvement. I used to put 100-150 pips as my s/l with 1:10 leverage, looked at 4hr charts near the support/resistance levels and take a position. Maybe I have been doing something wrong, maybe I haven't been implementing the technique correctly (there is no magic formula by the way, is there?!). Anyway, I got whipsawed too many times, sometimes 7 or 8 times in a raw. (call it correction/whipsaw/noise/retracement or whatever you want) I know the "big move" would have come eventually. But honestly guys, how many of you could bravely say that you would easily respond to a signal after 8 or 9 consecutive losses because of whipsaws?! AND with no trembling hands?! I mean, I am beginning to think that swing trading and generally trend following systems are difficult to trade, psychologically anyway.

Suppose you do possess the required iron discipline, have implemented correct money management and have followed your indicators tailored for such systems; what if you just got sick or had to go away for a couple of days or were not able to follow the market for any reason, when "the big move" comes?!! Wouldn't you feel silly? This is how I felt when I missed the big moves of GBP/JPY and EUR/JPY last week!

Anyway, from what I gather, as opposed to trend following systems and support/resistance strategies, breakout techniques are probably the safest to trade in a sense that they provide a high w/l ratio, so psychologically are easier to trade. Call me an egocentric, but I rather get the satisfaction of "winning more and building up" than "losing more and get (maybe?) an eventual winner". I do realize that breakout systems may not be superior overall because they miss the "big move". Before accusing me of falling to the trap of scalping, I should clarify that I find anything below 30 min charts also difficult to trade, if not nerve-racking. I am not seeking to sweep every pip in a breakout market and mentally I'm more than prepared to swallow losses as part of the package. But I want more or less to be able to catch the daily move without putting 100 pips at stake as s/l and with a high win/lose ratio, if there is such strategy. And I don't mind staying away from the market for a long period of time till the signal comes. Am I asking too much? If there is such technique or strategy, what is it? Price channels? Anything else?

I appreciate any help/comments

Thank you all

[Lasker]

You post a very critical question I am sure running around in everybody's head.

Trend Following actually equates to finding the big big move that will pay for the cost of all whipsaws and more. It is also based on a believe that when a price moves, it will continue to move for quite sometime (forever, if possible ).

So based on this believes, we must also acknowledge that you MUST NEVER miss a single big move. It is like working a whole month, but miss your paycheck at the end of the month. All your whipsaw cost is not paid for.
We must also hold on to the believe that trend will come and will always continue to come for as long as you are still trading. You will never know your system has fail until you run out of capital to test is anymore. Perhaps your system missed the big move, or the trend never came.

Now, breakout system equates to finding daily regular profit/losses that are easily predicted. It is based on a believe that the price has to move up, down or sideways. Since it is a breakout system, it automatically will not trade any sideway market (inside bar). But will trade any price that moves up or down. It is also based on a believe that once the price breakout from a certain level, it will continue up for a sometime.

So based on this believes, we must put tight stoploss and take profit on a per trade basis. With tight stop loss, comes small drawdowns (Big plus!). You also effectively combine the movement of up and down together into one category. You will able to profit from both the movement, compared to trend, where you hit the wrong side of the movement. You can profit in any trend. Also, my favourite bit, breakout system is very easily compatible with money management systems.
Unfortunately Breakout systems have its own disadvantages. You have to decide the stoploss and takeprofit targets for yourself. What will you base it on? Average throughout the year? Whipsaw still exist and it will change depending on the breakout level you specify. How do you know the breakout level you specify is no longer valid? Notice that you have to set most of the parameters yourself, and this is kinda bad, you are not letting the market tell you where it wants to go. Also, breakout system defeats the old saying, 'cut losses, let profit run'. You cut losses and the profits too. And finally, the biggest boo-boo of all, you need a tick by tick data engine to backtest your system.

Wow, this is my longest posting yet. I know I will miss out a lot, perhaps if this becomes an active discussion, I will able to contribute more.

Do contribute your thoughts,
Lasker