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Query: Moving Stops to Breakeven

  • #1
  • First Post: Edited May 5, 2006 6:02pm Aug 15, 2005 10:40pm | Edited May 5, 2006 6:02pm
I have two questions:

(1) As soon as I am able to draw fib lines, I have been tightening my stop to just beyond the 61.8% level. Is this a good practice or is it detrimental in the long run?

(2) Regarding the maxim "Never let your winners turn into losers". If this is taken literally, then the stop should be moved to breakeven the moment the trade moves into profit, even if only by one pip. I did this frequently the last two months to achieve my 72% run up in equity. Naturally, this resulted in a lot of breakeven trades. No problem. I just got back in on the next pullback. Is this a good technique or will it be detrimental in the long run?
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  • #2
  • Edited May 5, 2006 6:02pm Aug 15, 2005 11:31pm | Edited May 5, 2006 6:02pm
Quoting diallist
I have two questions:

(1) As soon as I am able to draw fib lines, I have been tightening my stop to just beyond the 61.8% level. Is this a good practice or is it detrimental in the long run?

(2) Regarding the maxim "Never let your winners turn into losers". If this is taken literally, then the stop should be moved to breakeven the moment the trade moves into profit, even if only by one pip. I did this frequently the last two months to achieve my 72% run up in equity. Naturally, this resulted in a lot of breakeven trades. No problem. I just got back in on the next pullback. Is this a good technique or will it be detrimental in the long run?
this is a very interesting question and one of the best i have seen on this forum. there are a thousand answers to your question. when you stated your large equity run i smiled and wondered to myself if you were moving your stop to breakeven real fast. i did not ask you because i figured you were. a sign of a good trader and i will tell you why. lets use our good friend muddbuddha as an example. his system works and works fine as do many ma cross systems when you have a non whipsawing market. buddha makes a good case for entering after the ten cross even though the price may already be ahead 20 pips or more. dont get me wrong thats fine but there is a safer way. you will miss some trades but it will give you an initial stop of around ten pips. instead of entering right away wait for the first pullback to the 25 or 50 and place your stop below the lowest or highest whichever it might be. if you look you will notice with any ma crossover system that the trades that do not turn and burn are the ones that retrace quickly to the ma and then reverse again in the direction you want but now your risk is much smaller. i hope mb does not mind me saying this. his way is fine i am just trying to give an example of lowering the risk. on anything less than a daily chart i never risk more than 15 pips on any trade. this is how i go about it when trading most of my systems which include several ma cross systems. it kills me to see a position go 20 to 30 pips against me right off the bat. if i pick my entries correctly i dont need to go through that. so my answer is maybe you dont need to do it after 1 pip but there sure is nothing wrong with 10. if there is a fib or pivot there well then thats even better. very few traders do what your doing and what happens to most traders? combine that with the fact that you saw a great improvement in your bottom line and i would have to say,,, nuff said. jim
  • #3
  • Aug 15, 2005 11:39pm Aug 15, 2005 11:39pm
Quoting diallist
(2) Regarding the maxim "Never let your winners turn into losers".
hey dialist ive never heard of this before :o who have you heard say it?

the quality of your entry will determine the speed at which you should move your stop to breakeven. if your entries are really good with not alot of pullback, the fast move to breakeven will work well. but if you usually get a pullback (like i do ) then you will need to give your trades a little more room to breath...
Relax and be happy.
  • #4
  • Aug 15, 2005 11:47pm Aug 15, 2005 11:47pm
Quoting merlin
hey dialist ive never heard of this before :o who have you heard say it?

the quality of your entry will determine the speed at which you should move your stop to breakeven. if your entries are really good with not alot of pullback, the fast move to breakeven will work well. but if you usually get a pullback (like i do ) then you will need to give your trades a little more room to breath...
exactly and anyone who might be confused realise merlin is not contradicting what i said. what i am talking about is waiting for the pullback BEFORE entering. as i said there is a thousand answers. this will probably turn into a good thread. jim
  • #5
  • Aug 16, 2005 12:44am Aug 16, 2005 12:44am
Quoting merlin
hey dialist ive never heard of this before :o who have you heard say it?
Just about everybody but you Merlin.
  • #6
  • Aug 16, 2005 12:58am Aug 16, 2005 12:58am
Quoting james16
on anything less than a daily chart i never risk more than 15 pips on any trade.
This blows me away. I regularly trade 35 to 45 pip stops. In fact I'm uncomfortable using smaller stops than that because I'm never too crazy about getting spiked out of a trade. I may exit before waiting for a stop to be hit but I sure don't like seeing a trade stopped out and then miss it as hit heads the right direction.

Jim with your MA retracement entries maybe you should have a system that follows the larger MA after a cross, like a trailing stop, only a trailing entry. Once the faster MA starts to drop back a certain percentage the slow MA entry cancels. What a great MA based support/resistance entry strategy. Trailing entries.

FT
  • #7
  • Aug 16, 2005 1:36am Aug 16, 2005 1:36am
Quoting fijitrader
This blows me away. I regularly trade 35 to 45 pip stops. In fact I'm uncomfortable using smaller stops than that because I'm never too crazy about getting spiked out of a trade. I may exit before waiting for a stop to be hit but I sure don't like seeing a trade stopped out and then miss it as hit heads the right direction.

Jim with your MA retracement entries maybe you should have a system that follows the larger MA after a cross, like a trailing stop, only a trailing entry. Once the faster MA starts to drop back a certain percentage the slow MA entry cancels. What a great MA based support/resistance entry strategy. Trailing entries.

FT
this is great i knew this would be good. i think where i am at is this. i trade anywhere from 30 to 60 minilots per trade. when i am up 10 pips i really dont need anymore. i pinpoint my entries as carefully as i can. thats why i cant and wont trade a back and forth ma cross system. i trade them but i take a small percentage of the crosses. rifle shots not a shotgun. on another note i want to take an oppurtunity to thank fij for all the wisdom and insight he has given to this forum. i think fij is the single most positive and giving person on this forum. truthfully he is the reason i stuck around in the early days. thanks fij
  • #8
  • Aug 16, 2005 3:11am Aug 16, 2005 3:11am
I totally agree with James. Entering at pullbacks is one of the most rewarding entering strategies I have ever tried. It's about a phsycological effect of not seeing almost 90% of your trades in the red everytime before they take off, if they did.

Thanks,

Nader.
  • #9
  • Aug 16, 2005 6:29am Aug 16, 2005 6:29am
Quoting james16
this is great i knew this would be good. i think where i am at is this. i trade anywhere from 30 to 60 minilots per trade. when i am up 10 pips i really dont need anymore. i pinpoint my entries as carefully as i can. thats why i cant and wont trade a back and forth ma cross system. i trade them but i take a small percentage of the crosses. rifle shots not a shotgun. on another note i want to take an oppurtunity to thank fij for all the wisdom and insight he has given to this forum. i think fij is the single most positive and giving person on this forum. truthfully he is the reason i stuck around in the early days. thanks fij
Thanks for the kind words James. Given your approach I'd still have expected 20 or 25 pips to be your maximum stop size. If you'd said 15 was your average it would have made more sense to me but trading with 15 pips maximum stop sizes is nothing to walk lightly by. I've taken a look at your trade setups and I can see that what you are saying makes sense but I'd just assumed a bit more breathing room on those trades. When I was trading fib confluence confirmation type trades from key levels I was paying a 5 pip spread which may have also made some difference from the more common 2 or 3 pips spread we pay now.

Regardless I'm glad you pointed that out. It definitely puts a different light on my understanding of how you are trading your setups.

FT
  • #10
  • Aug 16, 2005 9:54am Aug 16, 2005 9:54am
Jim, thanks for your most excellent reply. I've come to expect nothing less from you

Merlin, I'm about 80% sure I read this maxim in Dr. Elder's "Come Into My Trading Room".

The replies here seem to fly in the face of a lot of literature that says beginners focus on entries, when in fact, entries are the least important part of trading. Van Tharp has shown that money management is the key to profits even with random entries. But, as has been pointed out, I hate seeing a trade go red right off the bat. I like what everyone has said that if entries are carefully chosen, the stop can be far smaller. Like Fiji, I was surprised at the small size of your stops Jim. But I am intrigued enough to want to hear more.

Jim, there is one thing you've told me repeatedly that keeps ringing in my head. You say you always move your stops as quickly as possible to breakeven. You've said it so many times, that now I can't get it out of my head. Hopefully that is a good thing!

I've had a mental shift in the last two months. I'm no longer focused on making money. Now, when I place a trade, I ask how much can I lose and how quickly can I reduce my risk. I'm more interested now it not losing than in winning. Does that make any sense?

Dial
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  • #11
  • Aug 16, 2005 9:57am Aug 16, 2005 9:57am
Quoting fijitrader
Jim with your MA retracement entries maybe you should have a system that follows the larger MA after a cross, like a trailing stop, only a trailing entry. Once the faster MA starts to drop back a certain percentage the slow MA entry cancels. What a great MA based support/resistance entry strategy. Trailing entries.

FT
Fiji, you post the most amazing things! Trailing entries? This sounds very interesting, but I don't follow exactly how this would work. I know how much you hate writing long replies, , but would you be willing to expand on this idea for us?

Thanks

Dial
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  • #12
  • Aug 16, 2005 10:29am Aug 16, 2005 10:29am
This is an important thread for ideas on preservation of capital .

diallist, james, fiji, merlin and narafa:

I thought I was being ' a chicken ' by adjusting stops so as to keep losses at a minimum and assure at least some profit. Over the last couple of months I have so many less than +10 pip trades I had begun to wonder if I was falling into a scalping mode. After following this thread, I guess not !

KISS + 10 good - 10 bad since another trade will be along in awhile.


RE: Trading on pullbacks. I think I was absent the day they taught this ! Please a brief explanation on ways to measure the extent of the pullback so as not to be taking a trade against what could amount to a strong reversal.

Hate it when I find knowledge gaps. Love it when I can fill them.

Lou
  • #13
  • Aug 16, 2005 10:36am Aug 16, 2005 10:36am
Quoting fijitrader
Thanks for the kind words James. Given your approach I'd still have expected 20 or 25 pips to be your maximum stop size. If you'd said 15 was your average it would have made more sense to me but trading with 15 pips maximum stop sizes is nothing to walk lightly by. I've taken a look at your trade setups and I can see that what you are saying makes sense but I'd just assumed a bit more breathing room on those trades. When I was trading fib confluence confirmation type trades from key levels I was paying a 5 pip spread which may have also made some difference from the more common 2 or 3 pips spread we pay now.

Regardless I'm glad you pointed that out. It definitely puts a different light on my understanding of how you are trading your setups.

FT
I started demo'ing soon after reading this forum and this is probably the first lesson I learned. I got spiked out of a few trades that were good trades and would have turned out quite well otherwise. So, I loosened my stops and just keep a close eye on them.

The other lesson I learned was to have faith in myself and my analysis. At first I got afraid and got shaken out of trades that ended up working out because of a nasty mix of fear and impatience. Shit, the systems get the most talk on this forum but that's the relatively easy part to me. The hard part is the discipline and self-mastery.

Reminds me of that old story about the Old Bull and the Young Bull. They're standing on a hilltop overlooking a herd of cows, and the Young Bull says, "Let's run down there and fuck us a cow." The Old Bull says, "I have a better idea. Let's walk down there and fuck them all."
  • #14
  • Aug 16, 2005 11:00am Aug 16, 2005 11:00am
Quoting Far From Average
Reminds me of that old story about the Old Bull and the Young Bull. They're standing on a hilltop overlooking a herd of cows, and the Young Bull says, "Let's run down there and fuck us a cow." The Old Bull says, "I have a better idea. Let's walk down there and fuck them all."
<GASP> :o

FFA! Shame on you!

You made me hurt myself, laughing so hard!

Dial
sxaxlxvxaxtxixoxnxbxyxgxrxaxcxexdxoxtxoxrxgx
  • #15
  • Aug 16, 2005 12:17pm Aug 16, 2005 12:17pm
Quoting diallist
Jim, thanks for your most excellent reply. I've come to expect nothing less from you

Merlin, I'm about 80% sure I read this maxim in Dr. Elder's "Come Into My Trading Room".

The replies here seem to fly in the face of a lot of literature that says beginners focus on entries, when in fact, entries are the least important part of trading. Van Tharp has shown that money management is the key to profits even with random entries. But, as has been pointed out, I hate seeing a trade go red right off the bat. I like what everyone has said that if entries are carefully chosen, the stop can be far smaller. Like Fiji, I was surprised at the small size of your stops Jim. But I am intrigued enough to want to hear more.

Jim, there is one thing you've told me repeatedly that keeps ringing in my head. You say you always move your stops as quickly as possible to breakeven. You've said it so many times, that now I can't get it out of my head. Hopefully that is a good thing!

I've had a mental shift in the last two months. I'm no longer focused on making money. Now, when I place a trade, I ask how much can I lose and how quickly can I reduce my risk. I'm more interested now it not losing than in winning. Does that make any sense?

Dial
Dialist, once I am in a trade I just manage that trade. I do not worry about the money. I do not look at my account equity. In fact I have closed the account equity window on my platform. I only want to execute my plan once I am in a trade. However, when I started trading I would watch my account equity grow as a trade went favorable. Then I would end up taking my profits too early. ANyway, all of my trading now is just paying attention to the trade and looking for the next trade. Take care.
Steven
  • #16
  • Aug 16, 2005 3:49pm Aug 16, 2005 3:49pm
Quoting james16
exactly and anyone who might be confused realise merlin is not contradicting what i said. what i am talking about is waiting for the pullback BEFORE entering. as i said there is a thousand answers. this will probably turn into a good thread. jim
yeah the difference is when i enter a trade the market usually moves 40 pips against me. and thats exactly the time jim and dialist are entering their trade!

damn, i need to learn this pullback trick!
Relax and be happy.
  • #17
  • Aug 16, 2005 3:53pm Aug 16, 2005 3:53pm
Quoting fijitrader
Just about everybody but you Merlin.
LOL!

man, im out of the loop!

but now that i know this is a commonly known maxim of trading, im going to put it in the same place i keep the "trend is your friend"

before i met jim, i would have argued that there is no way to enter a trade without getting pullback. you would have to be pretty damn good with the entry. but i guess that is totally possible given what i am hearing now.
Relax and be happy.
  • #18
  • Edited 4:10pm Aug 16, 2005 4:04pm | Edited 4:10pm
Quoting diallist
The replies here seem to fly in the face of a lot of literature that says beginners focus on entries, when in fact, entries are the least important part of trading.
everything in trading flys in the face of literature including what i am about to say here...

entries are important. exits are important. money management is important. but NONE of them is more or less important than another.

think about it logically...why would an entry be any more/less important than an exit?? they are the same exact thing >>> a price at which you make a move. both entries and exits will have an equally huge impact on your system's expectancy, your win %, and your bottom line profits.

an how is MM more important than exits and entries? you cant win a negative expectancy game no matter what MM you use, and your expectancy is determined by your entries and exits.

you also can goof up a great expectancy system with poor money management.

so we are left with three very important aspects...entries, exits and MM, and to give more or less attention to any of them not prudent imo, even though almost every book you read will make the case that one is more important than the other..

oh oh...i just thought of a good analogy...

which is more important to a human?

oxygen, water, or food?
Relax and be happy.
  • #19
  • Aug 16, 2005 4:28pm Aug 16, 2005 4:28pm
Quoting merlin
LOL!

man, im out of the loop!

but now that i know this is a commonly known maxim of trading, im going to put it in the same place i keep the "trend is your friend"

before i met jim, i would have argued that there is no way to enter a trade without getting pullback. you would have to be pretty damn good with the entry. but i guess that is totally possible given what i am hearing now.
i have an assignement for everyone. based on mb's system go back and look at the crosses where price came back to the 25 or close to it either right after the cross or within 6 to 8 bars. your risk is now substantialy less and if it does go sour you have not lost 40 or 50 pips. a lot of times you will catch 10 or 15 pips on a bounce before going sour so you have a profit instead of a loss. pleeeease dont get me wrong, a lot of people have been having great success trading just the way mb says and hey thats fine. all i am doing is offering a different approach to playing ma cross overs to lower the risk. you are going to miss some big trades doing it this way. what you will notice is that by entering in this manner it allows your stop to be 15 to 20 pips, sometimes less. jim
  • #20
  • Edited 1:34am Aug 17, 2005 1:28am | Edited 1:34am
Hey Diallist & Lou ,I'm walking in the same shoes as you are....a +5 pip trade I will not turn into a looser,just to watch running a other 20 pips (but I'm already out),but even before you sit down at your computer you have to know what you want to achieve...
I trade 4 pairs(more/less correlated) & bite out 5-15 pips of the market it's all I need(4/5=20),so don't be sorry if you get stopped out...we all have to realise we are not prophets,even my ex country man Soros lost millions ,predicting one year earlier the .com burst.....but hey he is still around.
You James really shocked me with 15 points stop/loss(it's too tight ,brother),I use 30 pips mechanical(will kill my trade)30 pips is enough to me to prove,I'm wrong .....I consider 15 to tight(just on other day I opened at the end of Asian to watch for 2 hours not even hitting my break even & going 15 against me & exit at +3)
This is my 2cents ,guys ....
All the PIP's be with you
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