Moving Stop to B/E (Break Even) Discussion

Let's take a look and discuss the pros and cons of moving stop to BE.

I will go in Pro / Con to said Pro order. With simple descriptions.

PRO 1:
= You Don't lose money

Con: 1.
= You are all too often stopped out of trades that may be profitable
the whole point of a stop is that you "should have" assessed the risk, reward- before entering and be OK with it and able to trade again, if it is hit.

PRO 2:
= Instantly eliminating Risk after a move in your direction

CON:
2= Stop at BE will do just that - stop you out at break even, HOWEVER, many trades, especially in pairs that "back and fill" often
ie: Cable, may come back to your entry if not slightly below, before returning higher, if not double the move allowing stop to BE initially.

PRO:3 =What would have been a "tight stop" is now a neutral trade, no loss, yet NO gain either - thus to see con below

CON: 3= Paying the spread - AGAIN - to re-enter a trade you were already in. In turn losing the same pips or paying commissions on a trade that may have only dipped say 5 to 15 pips below to rise back above entry.

PRO:4 = "Possible" reduction of stress when away from computer/ unable to follow spot. Due to the fact that the trader will know there will be no loss.

Con:4 = This is basically the same as Con 1- we need to assume risk large or small to turn profit. (thus should be assessed and assumed before entry)
in turn rendering Pro 4 invalid if the trade is setup correctly.

PRO:5

CON:5 - In essence if you are often stopped out of a "potentially" profitable trade several times at BE, a trader may in turn expose oneself to more risk or the same risk by re-entering the market at a price possibly not as desirable as the first hit bid.

----> thus why not set a small TP 10 or 15 pips and at least book profit?

Ultimately I am leading to the conclusion that stop to BE will vary in use depending on the
A- Trading Style on TF and Rules of the trader

Yet I would like to hear other's view b/c I am certain I have not covered everything!



I am starting with these and will add more as they come to mind.
Hope to hear from some of you Guys and Girls out there.
X

I have just thought of a few more and will be adding to the first post as I realize them.

Move that stop to B/E in my view.

There are 2 rules in this game as far as I can see.

Rule 1. PROTECT YOUR CAPITAL

Rule 2. See rule 1.

Happy trading

If you want to protect your capital, stick it under your mattress. The answer should only be about one single question - does it improve profits? Whereas, as XT rightly says, it's often because it makes traders feel more comfortable. Illusion of safety and all that.

Trouble is, break even is a point in the market based on your trade and your desires. You're placing a market order at a point the market doesn't give a monkeys about. Or if your entry was a good reversal point, the market does give a monkeys, and will likely give a monkeys in several hours time when it revisits it. So... excluding certain momentum breakouts, it mostly hurts strategies (reduces your win rate and profit potential), and so doesn't make any sense. I'd left it there until very recently, but it misses the most important reason for doing it - to leverage your profits by compounding in and maintaining your initial risk. That's dependent on the probabilities of winning at your breakeven stage of the trade... still calculating that over here. I'll let you know

I do short scalping sessions, 1-2 hrs max. Wins avg. around 3 pips. Every now and then I catch a runner that pays off big from a be sl set. But, normally I don't bother as it seems I only have lost money overall trying to win bigger from be. So, I will get a session take that I like and then shoot some of the be sets, maybe the last one set with no tp before I just turn off the box for the session. Seeing as how I'm scalping in at 0.2 % of account per pip its worth a shot - when I let one of those run for more than 100 pips someday I'll be so happy. They mostly skip back & nick my sl.

I have not gave this much thought. But from experience, I will move my SL to +1 break even after a huge move in my favour.

I trade on 4h charts so my take profit range is usually anywherer from 80-200 pips. Most of the time, after it moves about 50% of my tp target in my favour I'll move to break even.

I find that IF the price eventually retraces and closes me out, I am usually wrong about the direction or my entry is not as good as I thought it would be. So I don't complain because it saved me a lot of heartaches.

There are times where it closes me out and then resumes in its original direction leaving me in a trail of dust. It does happen but not as often as above. So I don't complain either.

I do welcome the discussion though. Coz I've always wondered what benefits there are besides the peace of mind (which i feel is also important) that one gets from a free riding trade.

In my opinion, the reason to move the stop to BE is to limit drawdowns at the expense of potential profit. Really, we're talking about the speed at which we move to BE, as when price keeps moving our way the vast majority of us will move up our stop.

The best trades go your way straight away and never look back. Move to break-even and protect your capital, this IS the only thing that we have any control over. There will always be another trade.

Perry

I agree with that, if that doesn't happen you are probably not trading in the right market conditions for your strategy.

If you trading system has an edge and is wining let’s say 60% of the time and you have 1:1 RR and you start adding BE every time it’s in profit by X amount and then let’s say 40% of the times you place the BE move it breaks even (0pip profit or loss.)

Then 60% * 6/10 = 36% you win one but 40% of the time you loose one and 24% of the time you BE

Therefore you make -4% over time…

(Assuming BE trades only affect winners)

This is a completely fictional scenario to show that it can have a bad effect on your trading results, it might not make you lose in fact it could be that it just makes you less profitable or it might be that in the long run it doesn’t actually affect anything, the only way to test would be to take 2 accounts and the system on one of them and then trade the system with BE move on the other for 1 or 2 thousand trades and see which one is better.

I personally think that you should make a system that has a positive RR and then when you place a trade stick with it don’t start tampering with while in a trade , just let it play out and in the long run you will be profitable hopefully

http://img4up.com/images/07086960531470088974.gif




Red

My last 5 trades have been BE+spread. I trade H4 primarily. I move to BE once I hit 1R and then I was jumping to 1R when trade hit 2R.

As an example: 75 pip SL, go to BE+ at 75 pips, moveSL to +75 at 150 pips.

That means up to 149 pips I have only a BE trade. That was kinda dumb on my part. I didn't like the idea of taking half (or some other number) off at 1R.

So I am looking at two other concepts...Take half off at 1R and leave SL at -1R. Lots of room to breathe and if SL is hit then i am BE overall. That would be the same as current idea almost.

Other idea is take half off at 1R and move to BE. I truly don't want to take all off at 1R.

I definitely can see fear and greed working here. Fear gets me to BE quickly. Greed causes me not to take any profits.

Do it manually. Meaning, close out 1 or 2 pips ahead if it comes too close. Don't do it on GBP/JPY. Even if you are trading with the trend it might come back and dip at your b/e. Sucks, especially if then it continues to move 100+ pips or something. But don't give up too much.

This is my experience at least. However, I risk much less when I trade GBP/JPY so that compensates for not moving to B/E. Also, if you time your entries well and pay attention to retracetments you won't need to worry about your move to b/e getting hit.

A trade l am in just now, where the 2/3 and 1/3 ratio will work out if the trade goes well. Using this ratio the worst that can happen is you will be +1/3 as long as your first tg equals your stop


http://img4up.com/images/29521344411293344137.gif


This ratio elimantes stress and greed as those 2 emmotions play such a big part in our judgement


Kind regards


Red

Seems so easy...Makes a lot more sense then 50/50 as I was doing.

........I agree with triphop (post #4).

If the BE level has no real technical or statistical significance, then moving the SL there is effectively nothing more than a 'feel good' measure, which (as triphop points out) the market cares nothing about. Whether a BE level is likely to be revisited, thereby possibly stopping the position out prematurely, depends on the method being used.

There are some good posts by Igrok that explain this very well; I wish I'd bookmarked them now.

Reasons based on MM (i.e. it provides a free trade) or psychology are ineffectual, at least in terms of providing a long term statistical edge. If a trader's method has to somehow work around, or compensate for, his psychological foibles, then it's having to work overly hard.

But at the same time that presupposes that you can predict that the market will not turn against you.

Under that assumption you either have a full 1R loss until the market clears some hurdle (assuming that you move your SL just behind that hurdle) or the trade keeps going your way. Otherwise you are telling me that you never move your SL and i don't think that is what you are saying.

So I am assuming that you move your SL from S/R to new S/R otherwise you are just moving it to some random point.

At the same time I must assume that you get out of the trade on the first reversal in price action (forgetting about indicators at this time).

The easy trades are the ones with lots of momentum. It is the trade that stalls after 1R or reverses after 1R that I find difficult.

As for what the market cares about...I'm not sure that it cares about my entry position or my original SL. Yes, i hide my initial SL behind what i believe to be S/R but that doesn't make it so.

I am not in control after I enter except for the placement of my SL and TP positions or upon my decision to exit.

If it takes me out at my BE position then i can always re-enter if it makes sense to do so. But then again if the market just moved 1R to 2R against me then it is telling me something and I should listen.

on a nice trend trade I like to use jacko's AH trade to get back in.

And there is nothing wrong with feeling good about a trade. The market doesn't care but you do. there will be other trades.

The issue comes more with feeling frustrated if that happens to you. That is the more powerful emotion at that time and can cause stupid reactions.

Just my thoughts but remember my last 5 trades went to BE after being up 75 to 149 pips which is 1R to 1.99R.

Hanover, any chances of finding that tread again? I'd like to read up on it.

Rather than a thread as such, there were two posts if I recall correctly, and as luck would have it, the more detailed one (which is a must read, IMO) I can't seem to find now.
I've tried typing Keywords = "breakeven" "free trade" "money management" with User Name = "Igrok" into FF's search engine, all to no avail.

Anyway, here is the other one:
Also, if I'm permitted to quote from his book (Beat the Odds in Forex Trading, copyright Igor Toschakov, Wiley & Sons, 2006; pages 114-5):

“An obligatory condition should be the binding stops to a technically significant level, that is, to support, resistance, or a trendline. Stops should be placed only where the probability of continuation of a movement in the direction against your position grows sharply.......

As far as I know, lots of traders usually place stops considering money management reasons only. ........ Technical levels such as trend lines, supports, or resistances (frequently being close at a short distance behind the stops) are not taken into consideration. Such a practice results in stops that are triggered at the most improper moment. Too frequently, a prospective and potentially profitable position is liquidated and a loss is taken. To avoid such situations, here is another rule I always follow: Place no stops based on reasons of money management only. The binding of a stop should always be done to a specific technical level.” (bolded points mine)

I guess it's fair to assume that if Igrok recommends placing initial SLs at points of technical significance, that they should likewise be moved to such levels, also.

Hanover, I totally agree with this point. The unfortunate thing that i have found is that sometimes the next strong S/R level is more then 2R away. That makes it very difficult to traverse that area between 0 and 2R. I have found that typically if i can get past that point then strong locations can be found.