Breakeven Trades?

[Pi3141]

Hello all,

I've just got a quick question about breakeven trades. I've continually read on this forum that the key to successful trading is to i) protect your capital rather than ii) try to make a profit. And so with this in mind I figured the best way to preserve capital would be to move your stop loss to breakeven whenever your trade starts to go your way (I usually move it to breakeven after I gain 5points).

However, reading some of the other articles on this forum, in particular, Phil Newton's breakout strategy. He chooses not to move his stop loss to breakeven, rather, he would wait till either his limit or his stop loss is hit.

Would anyone be so kind as to offer some of their views on breakeven trades? - i.e. is it better to move your stop loss to breakeven always? or does the idea of taking a larger profit outweigh taking a small loss? Also, just so you guys know, I trade the FTSE100 rather than the FX.

Thanks for your help.

 

[Rhody Trader]

You shouldn't move your stop to breakeven out of fear of losing money. The tendency there will often be to put it too tight, making the chances of it being hit on a normal fluctuation higher. You should only move it if it makes sense within the context of your overall strategy. If and when stops get moved should be a function of your trading system, and as such thoroughly evaluated through testing.

 

[wackypete2]

Here's a simple method to try if you are using a 4h or higher timeframe. You should have a target point that you want to exit your trade, preferably a nice support/resistance or fib level. Once your trade has moved about 1/3 toward that point move your stop to breakeven. If the trade reverses and stops you out you can always re-enter the trade if your entry parameters are still valid and price moves back in your favor, having lost nothing from your original entry.

I wouldn't favor this on a shorter timeframe because your exit targets would normally be too small and noise will stop you out much too often. A lot of advanced traders will probably favor the "set it and forget it" style, but for new traders this strategy gives you some peace of mind and will keep you in the game. Be disciplined..or be broke.

Peter

 

[norrin]

It depends on the type of trade for me. If I'm taking the trade because I think price can pop, then I want the darn thing to pop. So once it makes its initial pop, I move to break even. For me, it's the easiest place to be in the world, You can make money, but you can't lose money.

 

[Splitlink]

Your account management should take a certain loss into consideration. Work out, for yourself, how much that is. Then try to find a high or low point, depending on your assessment of trend direction.

Let the price go down/up so many points from that point and enter with a numerical number of points to your stop loss.

Backtesting (no more than a month) will give you an idea of where you should put your stop so that the likelihood of it being triggered is minimal

Never enter a trade unless it is overbought or oversold. I have tried to figure this out by using Market Profile but given that up as being unnecesary. Now I am using Bollinger. Don't bother with the band. That is an indicator that only confuses. You want to know when the extreme overbought/oversold areas occur over an average number of bars and you are only interested in the bar that you are looking at.

An edit. Don't use too low an average for Bollinger. The smaller it is, the more it confuses. Use a larger one.
Hope that helps

 

[Splitlink]

As an addition, the above method eliminates pins, inside bars, swings and much other paraphernalia that 90% of the posters seem to be concerned with.

 

[FXTrend240]

just use a wide stop based on volatility so it doesn't get hit, much. 3X ATR, also at half way to target scale out half and bring stop to breakeven

 

[tomorton]

just use a wide stop based on volatility so it doesn't get hit, much. 3X ATR, also at half way to target scale out half and bring stop to breakeven

Presumably cut half the position at half-way to stop too? I certainly do scale out of losers when I have the chance but not winners before the target is hit.

 

[FXTrend240]

Presumably cut half the position at half-way to stop too? I certainly do scale out of losers when I have the chance but not winners before the target is hit.

scaling out of losers, never thought about it! thing is my stop loss point is always clear as im trading trends so once it makes a lower low or something like that then i know an annoying period of choppiness/consolidation is happening before a reversal or maybe a continuation, so i'll just take the hit.

 

[Splitlink]

When my stop gets hit, I'm all out and waiting for the next trade. Why bother scaling out? It's going against you. The point where you start to scale out, IMO, is where your one stop should be because that is where you are starting to have doubts.

 

[tomorton]

I always expect a position to go straight into profit so any backwards movement there is already bad news but doesn't yet mean the trade is wrong. Not scaling out of a loser to me is like not slowing a car down as you approach a brick wall - you'll probably still hit the wall, but the damage will be less, and that's the name of the game.

The other side of this coin is that, whereas there is an absolute exit signal at the stop, a good system always builds in the option for a part of a winning trade to be run beyond the profit target, possibly to silly levels not even justified by TA, so you end up with an asymmetrical positive return.

 

[Splitlink]

This is getting complicated.

Do you use a logical place to stop, or a fixed numeral, depending on the instrument that you are trading?

I might phase out if I have added to the trade, but with the first opening I don't.

This is where different characters have different styles. I am more impulsive, so my entries and exits are based on

a) decidingthat the trade is a good one and entering.

b) deciding that the trade is not going to work and closing.

 

[trendie]

Your account management should take a certain loss into consideration. Work out, for yourself, how much that is. Then try to find a high or low point, depending on your assessment of trend direction.

Let the price go down/up so many points from that point and enter with a numerical number of points to your stop loss.

Backtesting (no more than a month) will give you an idea of where you should put your stop so that the likelihood of it being triggered is minimal

Never enter a trade unless it is overbought or oversold. I have tried to figure this out by using Market Profile but given that up as being unnecesary. Now I am using Bollinger. Don't bother with the band. That is an indicator that only confuses. You want to know when the extreme overbought/oversold areas occur over an average number of bars and you are only interested in the bar that you are looking at.

An edit. Don't use too low an average for Bollinger. The smaller it is, the more it confuses. Use a larger one.
Hope that helps

re: Now I am using Bollinger. Don't bother with the band.

sorry this might be off-topic, Split, but I dont understand the above phrase. how can you use Bollinger and not use the band?
(the only components to bolly-bands are the SMA, and the volatility bands; these bands are shown relative to the SMA.)

 

[Splitlink]

re: Now I am using Bollinger. Don't bother with the band.

sorry this might be off-topic, Split, but I dont understand the above phrase. how can you use Bollinger and not use the band?
(the only components to bolly-bands are the SMA, and the volatility bands; these bands are shown relative to the SMA.)

You're trying to get into my edge, man! Not going to tell you. :cheesy:

 

[Splitlink]

re: Now I am using Bollinger. Don't bother with the band.

sorry this might be off-topic, Split, but I dont understand the above phrase. how can you use Bollinger and not use the band?
(the only components to bolly-bands are the SMA, and the volatility bands; these bands are shown relative to the SMA.)

Ok, I was just having a bit of fun.

Maybe I did not express it as I would have wished, but the Bollinger channels are history so I don't take any notice of them. The important part is where your bar cuts. There, it is overbought or oversold, according to the average you are using and the standard deviation that you are using to make your decision and if it reverses off a peak then it may only go down a little bit and then resume it's upward climb, so you could get stopped out. It's all a matter of experience, feel, TF and whatever, but it works for me, especially if you do not enter until the first pullback.

However, the OP wanted to know if his stop should be moved to BE. I think that it is better to calculate the risk you take on the trade, assess the chances of being stopped out and leave the stop where it is until it is time to close the trade, either at a profit or because it is going nowhere. In any case, it is all very personal-

 

[maiden22]

"In any case, it is all very personal"

This says it all really.

The question can only be answered by the person asking it.

 

[Splitlink]

re: Now I am using Bollinger. Don't bother with the band.

sorry this might be off-topic, Split, but I dont understand the above phrase. how can you use Bollinger and not use the band?
(the only components to bolly-bands are the SMA, and the volatility bands; these bands are shown relative to the SMA.)

Thanks Trendie,

Let's say that they get posted on the chart but I am only really interested in the last bit! I think I've got myself into a bit of a mess, here. The standard deviation of the latest bar is what I am looking at.

 

[tomorton]

This is getting complicated.

Do you use a logical place to stop, or a fixed numeral, depending on the instrument that you are trading?

I might phase out if I have added to the trade, but with the first opening I don't.

This is where different characters have different styles. I am more impulsive, so my entries and exits are based on

a) decidingthat the trade is a good one and entering.

b) deciding that the trade is not going to work and closing.

Hi Split -

The stop is always identified by the TA. The half-way point is just my preferred point to restrict risk - and will have no TA relevance. The TA stop is the earliest point at which the probability of the trade going into profit becomes even or less - if you like, when the pattern or signal or whatever was the trigger for entry, proves to be false.

 

[JDTRADER]

Hello all,

I've just got a quick question about breakeven trades. I've continually read on this forum that the key to successful trading is to i) protect your capital rather than ii) try to make a profit. And so with this in mind I figured the best way to preserve capital would be to move your stop loss to breakeven whenever your trade starts to go your way (I usually move it to breakeven after I gain 5points).

However, reading some of the other articles on this forum, in particular, Phil Newton's breakout strategy. He chooses not to move his stop loss to breakeven, rather, he would wait till either his limit or his stop loss is hit.

Would anyone be so kind as to offer some of their views on breakeven trades? - i.e. is it better to move your stop loss to breakeven always? or does the idea of taking a larger profit outweigh taking a small loss? Also, just so you guys know, I trade the FTSE100 rather than the FX.

Thanks for your help.

Its a crime to let a winning trade hit your stop loss !

Break Even is all depending on your style and risk to reward ratio

I use break even on multiple lot trades so a basic trade:
Enter £5 per pip
Trades goes green 10 pips, close £3, move Stop Loss to break even
£2 left to run - Free money. If it comes back to stop well I made my 10 pips
10 pips is the bread and butter, the rest to run is gravy

Entry is key ! I here guys say "you use 20 pip stop loss, man that's to tight. I always get stopped out, I give room to breath" no its not the stop loss is to tight you just got in to early.

I would rather move to break even and get 1 pip then hit my stop loss

But trading is all about what works for you

Same are scalpers hitting 50+ trades per day others swing trade and some guys put on one trade per week.

You have to find your own path

 

[Hawki]

Its a crime to let a winning trade hit your stop loss !

Break Even is all depending on your style and risk to reward ratio

I use break even on multiple lot trades so a basic trade:
Enter £5 per pip
Trades goes green 10 pips, close £3, move Stop Loss to break even
£2 left to run - Free money. If it comes back to stop well I made my 10 pips
10 pips is the bread and butter, the rest to run is gravy

Entry is key ! I here guys say "you use 20 pip stop loss, man that's to tight. I always get stopped out, I give room to breath" no its not the stop loss is to tight you just got in to early.

I would rather move to break even and get 1 pip then hit my stop loss

But trading is all about what works for you

Same are scalpers hitting 50+ trades per day others swing trade and some guys put on one trade per week.

You have to find your own path

JD I like your way of thinking,get to B/E or couple of pips in profit rather than hit the stop, just signed up to your blog, GL with your trading