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Is Breakeven Really a Good Move?

  • Post #1
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  • First Post: Jun 27, 2020 4:47am Jun 27, 2020 4:47am
Goodmorning everyone. I am seriously reflecting on the use of moving the stop loss to breakeven.
Let me explain better: I trade on the nasdaq, and generally open two positions with two different TPs, the first at 1: 1 and the second at 1: 2/3 depending on the situation. After the first tp, I move the stop loss to breakeven.
The problem is this: it often happens that my stop loss is taken at breakeven after tp1, only to see the price go back in the right direction.
And the consequence is this: last week was a great week, with a win ratio of 70%, but almost exclusively of tp 1 (except for one operation).
This week, however, she has been a loser, and she has brought me back on breakeven since last week. This would not have happened if I had not used the breakeven stop, because I would have taken the tp 2, and the gain would have been triple.
What do you think about it ? how do you manage the stop loss in these situations?
I have the feeling of leaving a lot of money on the table.
Hey there, I have encountered this issue before in my own trading and maybe I could give you two suggestions.

1. First, you may want to try just closing 80% at TP1 for now and collect more data on how many trades actually run to your next TPs. In this way, with a hit rate of 70%, assuming you risk $10 a trade and close 80% at TP1, you would be $26 up after 10 trades even if they all stop you out at BE after TP1 (you hit TP1 70% of the time). During this time, you could collect data on how often it hits your other TPs and adjust the percentage accordingly.

2. Secondly, another thing which you could try is closing 60% of your trade halfway to stop loss. So lets say a full loss would result in a loss of $10, but when you close 60% at the halfway to stop loss, you loss only $7. If you combine this suggestion 1, you would still be in profits after 1 win and 1 loss. In addition, if the trade runs to your 1:1 after you close 60% at the halfway mark to your stop, the overall result is still a net positive.

Hope these two suggestions make sense. I made use of these two methods a while back when I was scalping and they served me well. Maybe you could backtest it or do the math on it. Hopefully itll help you.
Quoting IWantPipsPls
Hey there, I have encountered this issue before in my own trading and maybe I could give you two suggestions. 1. First, you may want to try just closing 80% at TP1 for now and collect more data on how many trades actually run to your next TPs. In this way, with a hit rate of 70%, assuming you risk $10 a trade and close 80% at TP1, you would be $26 up after 10 trades even if they all stop you out at BE after TP1 (you hit TP1 70% of the time). During this time, you could collect data on how often it hits your other TPs and adjust the percentage accordingly....
Thanks a lot for your advice.
All of this happens because actually, if I hit a full stop loss, I lose 2%. If I take the tp 1 I gain 1%, being that to get to the 3/4 I need the tp2.
This logically leads to the fact that if for a week I am not profitable, I also burn a lot of gain.
Maybe it would make more sense to open a single operation, instead of two with different TPs?
its mathematically impossible to have a losing week in the conditions you described IF you really had breakeven trades; do you include the cost of the trade in the BE?

And yes, moving to Break even, partial close, trailing stop, compound positions, etc its the second best thing a trader can learn to do, after learning how to read the price
Quoting gian97
{quote} Thanks a lot for your advice. All of this happens because actually, if I hit a full stop loss, I lose 2%. If I take the tp 1 I gain 1%, being that to get to the 3/4 I need the tp2. This logically leads to the fact that if for a week I am not profitable, I also burn a lot of gain. Maybe it would make more sense to open a single operation, instead of two with different TPs?
Yea makes sense. I still recommend having more than 1 TPs to really capitalise on runners. But my suggestion would definitely be to close 80% at TP instead. So at TP1 you gain 1.6%. So for 10 trades, lets say you win 70% so 7 trades. You gain 11.2% then lose 6%. Overall, you are still up. In addition, you still leave a 20% to go for further targets. This way, even if none of your trades reach your further targets you still win. Even closing 60% at TP1 is fine and mathematically you still win. So maybe play around with the percentages you close. Rather than just closing 50%.

Situation 1:you close 50% at TP1. Out of 10 ten trades you lose 3 (down 6%) and win 7 which hit TP1 and then BE (gain 1%*7=7%). Overall, you net 1% but may end negative due to commissions.
Situation 2:you close 60% at TP1. Out of 10 ten trades you lose 3 (down 6%) and win 7 which hit TP1 and then BE (gain 1.2%*7=8.4%). Overall, you net 2.4%.
Situation 3:you close 70% at TP1. Out of 10 ten trades you lose 3 (down 6%) and win 7 which hit TP1 and then BE (gain 1.4%*7=9.8%). Overall, you net 3.8%.

So depending on how you play with the percentages, even if you hit BE all the time after TP1, you can still win. So ultimately, i still do recommend having runners but just close your trades in percentages which ensure you still win even if you constantly stop out at BE after TP1.
Quoting havo
its mathematically impossible to have a losing week in the conditions you described IF you really had breakeven trades; do you include the cost of the trade in the BE? And yes, moving to Break even, partial close, trailing stop, compound positions, etc its the second best thing a trader can learn to do, after learning how to read the price
In what sense mathematically impossible? it seems so simple: out of 5 trades, you are wrong four, with a full stop loss. This can happen with any strategy even if you have a good win ratio.
If you read correctly I divide a full position in two, with the first at 1 and 1 and the second at 1 and 2. But if in a week I don't even take the tp 1, here is what happens.
Obviously this is not the norm, in general I am profitable, but in fact I seem to leave money on the table when I get the BE and then go get my second tp.
Add time into your decision, if lets say price wont reach your TP2 in one hour after TP1- take out the rest of your open position. Don't bother about money in the market, there will be a good chance to catch a good move next time. Yes it hurts, but All that matters is - equity. it's like - hey your account is growing, be happy, don't stress yourself too much.
Quoting gian97
Goodmorning everyone. I am seriously reflecting on the use of moving the stop loss to breakeven. Let me explain better: I trade on the nasdaq, and generally open two positions with two different TPs, the first at 1: 1 and the second at 1: 2/3 depending on the situation. After the first tp, I move the stop loss to breakeven. The problem is this: it often happens that my stop loss is taken at breakeven after tp1, only to see the price go back in the right direction. And the consequence is this: last week was a great week, with a win ratio of 70%,...
Hi Gian,
There is no one right answer that fits all. The outcome would depend on the trading strategy you are using, the time frame and the particular market context you are trading. e.g. a trending market helps bigger targets, vs a mean-reverting market needs smaller targets, etc. To save time (as opposed to walk-forward testing with future trades) the trader may want to code up the strategy (if you can) for each scenario (with and without breakeven stops) and look at the strategy result reports. If the trader can't code it, he can print out the price charts and the indicators, then hand plot the hypothetical historical trade entries and target prices on the charts for at least 50 trades or more, to see the overall results. In other words, manually back test it and tabulate your result in a spreadsheet. One may be surprised to find some strategies or market may support even a TP3 or a trailing stop, with or without moving to breakeven. An additional bonus, the trader may even see under what certain market environments the strategy could filter out some losing trades by slightly modifying the strategy ... It's worth spending a few hours doing backtesting IMO.
Hope that makes sense. ~ Bill
Quoting gian97
{quote} In what sense mathematically impossible? it seems so simple: out of 5 trades, you are wrong four, with a full stop loss. This can happen with any strategy even if you have a good win ratio. If you read correctly I divide a full position in two, with the first at 1 and 1 and the second at 1 and 2. But if in a week I don't even take the tp 1, here is what happens. Obviously this is not the norm, in general I am profitable, but in fact I seem to leave money on the table when I get the BE and then go get my second tp.

Lets see:

1 full stop, ok no problem

4 "wrong" ?? what exactly this means? did you move it to break even? because if you did it the right way there is no chance you have lost money, unless your targets are messed up (you lose more than you win overall)

Break even = entry price PLUS Comission/spread.. if you only move the stop to the entry price you will lose money every time because of this.. If this isnt the case the disregard this sentence

Again, if you are closing 1 trade at 1:1 and the other you let it run and move the stop loss to break even then you have something going on because i do this all the time (combined with other techniques) and when properly done its veeeeryyyy hard to lose money
Thank you all for the very useful advice!
Havo still hasn't understood what I'm saying, but I don't know how to explain it differently.
  • Post #11
  • Quote
  • Edited 11:23pm Jun 28, 2020 11:12pm | Edited 11:23pm
Quoting gian97
Goodmorning everyone. I am seriously reflecting on the use of moving the stop loss to breakeven. Let me explain better: I trade on the nasdaq, and generally open two positions with two different TPs, the first at 1: 1 and the second at 1: 2/3 depending on the situation. After the first tp, I move the stop loss to breakeven. The problem is this: it often happens that my stop loss is taken at breakeven after tp1, only to see the price go back in the right direction. And the consequence is this: last week was a great week, with a win ratio of 70%,...
Maybe you need better entry?
Are you entering using the same timeframe as your targets and projections?
sounds like you have swing strategy?

If so recommend getting more micro on entry and thus that separation / room to allow tests/pullbacks at your first TP.

Taking profit and getting break even at first pivot is correct imo. Maybe just get better entries?. give yourself more room.
In addition, break even order is a market order, which is often very unreliable. Only smaller account retails use it.
Simplicity is the ultimate sophistication - Leonardo da Vinci
Quoting gian97
Goodmorning everyone. I am seriously reflecting on the use of moving the stop loss to breakeven. Let me explain better: I trade on the nasdaq, and generally open two positions with two different TPs, the first at 1: 1 and the second at 1: 2/3 depending on the situation. After the first tp, I move the stop loss to breakeven. The problem is this: it often happens that my stop loss is taken at breakeven after tp1, only to see the price go back in the right direction. And the consequence is this: last week was a great week, with a win ratio of 70%,...
Hi gian97, it really depends on the strategy that you implement. There are some that shoot up/down very rapidly in a range of 15-30 pips, depending on the pair, while others may consolidate a while till your target is reached. If your strategy is the former, then I would suggest breaking even after a certain number of pips are gained as if the trade starts to reverse, you'd know that something is wrong. On the other hand, if it's the latter, there would be no point in breaking even; you'd just be reducing the probability of a gain.
Quoting heispark
In addition, break even order is a market order, which is often very unreliable. Only smaller account retails use it.
How do you say this?
Review all your trades. Plot your equity curve with a move to break even. Plot your equity curve without a move to break even. One will be better than the other.

My gut tells me that moving to break even will be less profitable than not moving to break even, but you need to factor in the psychological benefits that you will get from protecting your account balance. You might decide to keep doing it even if on a $ basis it is less profitable as you will trade better with your capital protected.
This week I am trying not to divide the position into tp 1 and tp2. And it's going better. The losses are very small and I managed to hit an R: R greater than 1: 2 for 3 days in a row.
The only risk is to take a breakeven because the position goes back.
I'll update you if by chance, this is the solution. What seems obvious is that dividing the position in two often takes only one tp, but when taking the loss it is higher.
Quoting gian97
This week I am trying not to divide the position into tp 1 and tp2. And it's going better. The losses are very small and I managed to hit an R: R greater than 1: 2 for 3 days in a row. The only risk is to take a breakeven because the position goes back.
If the price retrace back on you that far you are placing your trades too early! at that point you should be in a position to hit pending orders in the same direction, not losing pips or hitting the break even

Quoting gian97
I'll update you if by chance, this is the solution. What seems obvious is that dividing the position in two often takes only one tp, but when taking the loss it is higher.
This again confirms this.. review your entry points and see how many times it retrace backs, properly placed trades should not retrace that far to Break even IF you move to break even at a 1:1 ratio

This is what i do (among other things) and the price retracing all the way back to BE its not common for me.. it can get close but hardly all the way.. I did had the same problem in the past until i fine tuned my entrys and now its rare when it happens

Review your entrys and check why, from that point the price retrace that far against you, maybe a mistake in price reading, an indicator or something.. you have a good win % do it and you will get a big boost on profits =)
Quoting havo
{quote} If the price retrace back on you that far you are placing your trades too early! at that point you should be in a position to hit pending orders in the same direction, not losing pips or hitting the break even {quote} This again confirms this.. review your entry points and see how many times it retrace backs, properly placed trades should not retrace that far to Break even IF you move to break even at a 1:1 ratio This is what i do (among other things) and the price retracing all the way back to BE its not common for me.. it can get close...
This is true, I am having a better result because I have removed an indicator that I used for confirmation, but I understand that so much is only a "mental" confirmation or that it does not bring any type of improvement.
Now based solely on other confirmations, I am able to take better entry point. For now no breakeven!
ps.I'm an old friend of yours ... try to guess
  • Post #19
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  • Last Post: Jul 2, 2020 12:50pm Jul 2, 2020 12:50pm
It depends on how you set your stop loss order. It is often a good practice to move your sl to break even after the price action has reached tp1. But the sl order must be initially set at a few pips below structure (for buy) or a few pips above structure (for sell). That way, you are risking small to win big, provided that you have identified a good space ahead where price action can move to before retracement. However, if the sl order was placed at an irregular area, with no reliable confluence of factors, it can easily be ripped off.

Stay safe, trade safe.

KP
Do your homework, follow the footprints of smart money
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