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Moving stop to break even or not

  • #1
  • First Post: Oct 1, 2015 9:06pm Oct 1, 2015 9:06pm
Many traders talk about moving their stop to break even when the price has moved 1:1 from the signal or 1:1 in terms of profit.

This is often not a technical position to be moving the stop to and can be simply pyschological. Trailing stops are no better.

When you move your stop if atall?
  • #2
  • Oct 1, 2015 9:18pm Oct 1, 2015 9:18pm
There's no perfect answer ... but generally targets should be set/updated with a technical reason.

Set or move a stop at fixed pips value or ratio makes no sense to me.

Personally I prefer to look at the last swings and figure out if there might be some kind of support/resistance there. Trailing stop at these swings makes more sense to me.
MT4/MT5 EAs/Indicators/Alerts coder
  • #3
  • Oct 1, 2015 10:02pm Oct 1, 2015 10:02pm
Interesting perspectives. IMO the distinction in methodology is influenced significantly dependent on whether you are a discretionary trader or a fully automated trader.

A fully automated trader (my current preference) is a 'bust through technique' that insists on process as opposed to trading in the moment and focussing on specific market conditions. Granted the discretionary trader who is skilled can probably outperform the mechanical trader, but as a general statement, at least a fully automated trader embeds trade discipline into the program as a standardised feature. A problem with EA's as we all know is the reduced ability for creative decision making along the way (which is where our brains excel) and once written, you are forced to abide by programmatic rules irrespective of actual market conditions.

As a fully automated trend trader, it is essential that the process incorporates the principle of cutting losses short and letting profits run. As a process, this usually means to embed a trailing stop into the system upon entry to ensure that at all steps along the way, this principle can be abided by....independent on the clues being generated by price movement along the way. The sacrifice made with this philosophy is therefore relative underperformance with more weight being applied to risk management as opposed to outright profitability. On the other hand, the technique such as that preferred by FerruFx embeds with it flexibility and the ability to trade manage 'on the fly' with creative problem solving. The discretion provided by this flexibility is likely to produce relative overperformance in comparison, but will entail unrealised profit sacrifices along the way or if not diligent, the potential for losses arising from inattention to market conditions.

I must admit I have fully backtested a wide range of different forms of trailing stop against set and forget initial stops and it is difficult to categorically state with any statitical validity which is better in terms of risk:reward and perhaps the distinction therefore depends on the nature of strategy being employed.
  • #4
  • Oct 1, 2015 11:12pm Oct 1, 2015 11:12pm
All depends on whether you want to be stopped out at BE. You are placing an order to close your trade, it's a S/L or T/P to you but not to the market. Which ever one is closest to the market price is the one with the best chance of being hit.
Good Trading
  • #5
  • Oct 2, 2015 1:06am Oct 2, 2015 1:06am
well I do try to move the stop when a technical position becomes available such as a swing as FerruFx stated but I can now appreciate how an automated system can benefit trailing stops thanks to Copernicus's post.
  • #6
  • Oct 2, 2015 1:56am Oct 2, 2015 1:56am
Quoting richhand
Many traders talk about moving their stop to break even when the price has moved 1:1 from the signal or 1:1 in terms of profit. This is often not a technical position to be moving the stop to and can be simply pyschological. Trailing stops are no better. When you move your stop if atall?
Why?

While you wait for the magical 1:1 your sl will get hit or worse if you don't use a sl
It would seem to me that if $$ is put on a trade, I would want to have always as $$ or more and never - $$ (:
  • #7
  • Oct 2, 2015 2:22am Oct 2, 2015 2:22am
Quoting Mingary
{quote} Why? While you wait for the magical 1:1 your sl will get hit or worse if you don't use a sl It would seem to me that if $$ is put on a trade, I would want to have always as $$ or more and never - $$ (:
We do have a SL but we are talking about moving it to break even when price moves a certain amount eg. 1:1. and then letting the trade run.
  • #8
  • Oct 2, 2015 2:29am Oct 2, 2015 2:29am
Quoting richhand
{quote} We do have a SL but we are talking about moving it to break even when price moves a certain amount eg. 1:1. and then letting the trade run.

I don't wait for 1:1
I expect that the trade will be a loser and move to BE as soon as I have enough clearance to cover spread and commission.
  • #9
  • Oct 2, 2015 2:49am Oct 2, 2015 2:49am
It makes no sense to me, unless your stop is away from Volatility at least sigma 2 otherwise assuming normality and Brownian motion we can expect your stop to be hit
AVT INVENIAM VIAM AVT FACIAM
  • #10
  • Oct 2, 2015 2:49am Oct 2, 2015 2:49am
Quoting richhand
Many traders talk about moving their stop to break even when the price has moved 1:1 from the signal or 1:1 in terms of profit. This is often not a technical position to be moving the stop to and can be simply pyschological. Trailing stops are no better. When you move your stop if atall?
Hi,
I've always thought that your stop should be at the point where the rationale for your trade no longer holds. If the market gets there you shouldn't any longer be in the trade. So, as the trade progresses you can bring the stop up as the 'rationale failure' point moves also. Eventually you get to your break-even point.

That said, a lot does depend on your emotions (unless you are following a 100% mechanical system). I try to set my initial stop at the point where I would give up on the trade but moving it to break-even depends often on how I feel about the progress of the trade. If it looks to me as if it is going as planned I'm happy to move the stop up gradually with the improving failure point; but if I start getting nervous about the trade I'll bring it up to break-even much more quickly so as to protect myself. Sure, I often get stopped out prematurely for zero but I'm happy to forego some missed profits for peace of mind. It all depends on your psyche and risk tolerance, I guess
  • #11
  • Oct 2, 2015 2:59am Oct 2, 2015 2:59am
Quoting the redlion
It makes no sense to me, unless your stop is away from Volatility at least sigma 2 otherwise assuming normality and Brownian motion we can expect your stop to be hit
Not if it's based on the fact that most trades will be losers.
You can scream your lungs out to the market about this: "Volatility at least sigma 2 otherwise assuming normality and Brownian motion"
but you can be sure it's not listening (:
  • #12
  • Oct 2, 2015 3:05am Oct 2, 2015 3:05am
Quoting Mingary
{quote} Not if it's based on the fact that most trades will be losers. You can scream your lungs out to the market about this: "Volatility at least sigma 2 otherwise assuming normality and Brownian motion" but you can be sure it's not listening (:

I am not sure what you mean, Let me rephrase what I stated. There is a certain volatility or sigma/ standard deviation of returns either daily, hourly etc that the market moves... if your stop is within sigma 2 it is mathematically probable that it will be hit
AVT INVENIAM VIAM AVT FACIAM
  • #13
  • Oct 2, 2015 3:20am Oct 2, 2015 3:20am
Quoting the redlion
{quote} I am not sure what you mean, Let me rephrase what I stated. There is a certain volatility or sigma/ standard deviation of returns either daily, hourly etc that the market moves... if your stop is within sigma 2 it is mathematically probable that it will be hit
That is certainly true. Sometimes it takes 3 or 4 attempts to get on a move, but the 4 tries are free (plus an "emergency" stop as a last resort).
  • #14
  • Oct 2, 2015 5:24am Oct 2, 2015 5:24am
It all depends on the time frame. For swing trading, and longer term trend following it definitely makes sense to move stops to break even.
However for short term (scalping, mean reversion, breakout....) things are different. Long time ago I realized that by the time I decide to move the stop to break even, this is usually the best time to close the trade and take the profits. (around 1:1 RR on most trades). I've noticed that when I decide to move the stop and hold for more pips - on average 8 out of 10 times the price hits my stop and I am out with 0 profits.
The only exception, when I do hold on for more pips with break even stop is when the market just goes straight through my 1:1 target and almost instantly gives me over 3:1 . For me this is sure sign of unusual strength, and from experience I know that in these situations 7 out of 10 times there will be continuation after the initial spike. These unusually strong trends always tend go further and faster than you expect. I often even pyramid (average up) my position in situation like this.
  • #15
  • Oct 2, 2015 5:35am Oct 2, 2015 5:35am
Quoting richhand
Many traders talk about moving their stop to break even when the price has moved 1:1 from the signal or 1:1 in terms of profit. This is often not a technical position to be moving the stop to and can be simply pyschological. Trailing stops are no better. When you move your stop if atall?
I can only speak to how I trade, so what I am about to say works for me and may not work to others. The notion of 1:1 is subjective and is of little value in trading. First, a stop is used to protect your margin account, not an individual trade. The trade is a trade, and entering it should be based on your trading strategy. I base my trades on my analysis of the structure of the market. I trade only when a stop makes sense, which is to say, my view of risk and the structure of the market are in sync. A trade will either develop or fall apart. If it develops, I add positions. If it falls apart, I get out or my stop is hit. As the trade develops, I move my stop as structure develops. B/E occurs when the stop equals the average price of all entry prices, and that events depends on how the structure unfolds. If I try to impose my view on the market of 1:1 or some other arbitrary view of risk and risk mitigation, the market will likely reject my view and stop me out. If I respect the structure and trade according to how it is unfolding, I can stay in trades longer, add more positions, and watch my targets hit.
  • #16
  • Oct 2, 2015 6:14am Oct 2, 2015 6:14am
Something I struggle with.

There is no doubt that survive-ability of positions is greater when the SL is not moved. But you risk greater drawdown as a result.

So one has the weigh up the costs.

i) Position moved to B/E only to be taken out, but drawdown potentially less.
ii) Position left at original stop loss, which then may translate to a big winner, profits potentially bigger.

Tough question. No right answer I feel.
  • #17
  • Oct 4, 2015 6:40pm Oct 4, 2015 6:40pm
To make Precise Breakeven analysis you can start with analysing your % Winning rate.

You have to review your edge, If you dont have old data to make statistical analysis then just trade without breakeven on demo for few weeks.
after that find out answers for the questions below

-What is your win rate with Breakeven , if you put breakeven how many loosers on avarage will be filtered ?

-What is your win rate without Breakeven , how many winners will be there if you take just win or loose ?

-Did Breakeven settings blocked winners more than loosers ?

-Do you need breakeven for 1:1 is it going to be better for different options like 1:2 ?

You can come up with different MM strategies. If you know your :

Drawdown per entry ,
Win rate ,
Avg wins ,
AVG looses ,
AVG Win and Loose with Breakeven ,
AVG Win and Loose without Breakeven

You can make your best choice with data

Just find how often that is happening.
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Take it easy.
  • #18
  • Oct 4, 2015 7:55pm Oct 4, 2015 7:55pm
Quoting richhand
Many traders talk about moving their stop to break even when the price has moved 1:1 from the signal or 1:1 in terms of profit. This is often not a technical position to be moving the stop to and can be simply pyschological. Trailing stops are no better. When you move your stop if atall?
Bank 50% and BE on 50%... if the price keep going in the right direction.....and move the BE as the price going@ 2:1 3:1etc .... the only way I would do it...
even if it hits BE you have 50% in the bank...(+ potencial gain from moving BE)
  • #19
  • Oct 4, 2015 9:25pm Oct 4, 2015 9:25pm
It depends on how the market is moving, volatility, latest high, latest low and your profit objectives.
  • #20
  • Oct 9, 2015 8:57am Oct 9, 2015 8:57am
In my opinion. If you trade on the trend you should to shift your stop on the price of minimum or maximum (long/short position) of rollback (shelf) on your trend. When the trend begin to move in his basic direction.
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