How does moving to break even affect the RR

[SanMiguel]

Moving to break even is the best way to make a profitable strategy, unprofitable.

In my opinion.

A lot of people do it though. You can get into a position have the trade move your way a bit and then move completely against you.
?

 

[MrGecko]

Of all the things TD has posted over the years, one of the things that I remember particularly is his description of driving down the motorway at 80 with a coffee in one hand, the FT in the other while he is talking to his broker on the phone he has nesteld under his chin......

... oh no, thats not it. Sorry, my mistate.

It was when he said "people that move their stop to BE are trading their PnL, not the market" (citation).

 

[bangkoker]

The more I think about this thread and the more I think back to when I have tried it, the more I don't like it.

The more I read and the more I study the more I think I need a longer term strategy where the stop is far enough away from 'noise' that I am definitely wrong. Plus maybe a mixture of semi scalp trades when everything seems to be screaming that the market will give a quick 5-10+ points.

Thanks for a good thread:clap:

 

[SanMiguel]

The more I think about this thread and the more I think back to when I have tried it, the more I don't like it.

The more I read and the more I study the more I think I need a longer term strategy where the stop is far enough away from 'noise' that I am definitely wrong. Plus maybe a mixture of semi scalp trades when everything seems to be screaming that the market will give a quick 5-10+ points.

Thanks for a good thread:clap:

The problem is those semi scalp trades are the ones that have drastic RR issues. If you can be sure the market will bounce then the win ratio is taking care of the trade for you not necessarily the RR, which is probably less than 1:1.

It seems to be a common strategy for the yanks who mainly trade stocks.
The move to break even whilst remaining in a full position trade is also a popular strat amongst many.
Seems like the overall focus is on money management rather than RR (granted that some money management can change the RR profile).
Like people have said, it;s difficult without backtesting..and backtesting price action strategies isn't straight forward.

 

[MrGecko]

Like people have said, it's difficult without backtesting..and backtesting price action strategies isn't straight forward.

I have built a spreadsheet that you can backtest different stops and targets on retrospectively.

I won't share it, but it's possible. The basic idea is to track new highs and new lows - in order - of your PnL if you had stayed in the trade until, say, 18:00.

so say you bought at 100 stop 90 target 115, and it went 100 - 96 - 111 - 88 - 120. You would be stopped out for -10.

you would record:

period 1: I could make 10 (11-1) if I risked 5 (96-1)
period 2: I could make 119 if I risked 13

etc...

then you have "tester" cells where you input different stops and targets (fixed OCO) and you can see what your PnL would have looked like if you used the tester settings rather than the ones you did.

 

[trader_dante]

Of all the things TD has posted over the years, one of the things that I remember particularly is his description of driving down the motorway at 80 with a coffee in one hand, the FT in the other while he is talking to his broker on the phone he has nesteld under his chin......

... oh no, thats not it. Sorry, my mistate.

It was when he said "people that move their stop to BE are trading their PnL, not the market" (citation).

You know the funniest thing about that Gecko is not long after, that behaviour finally caught up with me. That's karma for you. I write about doing it early in the thread. And a few pages later, I get caught by the Police, fined and given points: http://www.trade2win.com/boards/trading-journals/54766-confessions-local-17.html#post1087380

 

[Scotty2Cues]

A very common trading money management process seems to be to take off half of your profit after 10-20 pips and then let the rest run to target.
Moving the stop to break even changes the risk but can we quantify it because it also makes it more likely that your trade will be stopped out at break even.
For example, a trade targeting 20 pips and stop loss 20 pips, this is 1:1.
Now, if you were to take the opposing money management method, you would take off half at 10 pips and move to break even (this is the same as taking a 5pip profit and changing the RR to 0:1 (zero risk for 10pips remaining ie half of 20pips).
However, when you do this, you have changed the overall risk structure, you only gained 15 pips overall yet you were risking 20 originally - this can't be expected to work in the long term can it?

Trade strategy / win ratio and the move to break even changes things a bit but it's difficult to quantify.

You could also, take half off at 10 pips, and move the stop up by 10 pips...

Moving to BE loses money in the long run, even if you get the direction correct. I did some calculations (after someone did a spreadsheet) using a random walk. I originally thought moving to BE was a good idea.....
Assume we start at zero and a step to the left/right represents a pip with TP x pips to the right and SL y pips to left. Also assume that there is 55% percent chance of the next step being to the right. You are far better to leave SL where it is than to move it to BE.

Its also better to have a tighter SL to start with so that you have a larger postion size.
Attached is the spreadsheet a guy over at Forex Factory did

 

[Scotty2Cues]

When using R:R you also need probability of being stopped out

Expected value = -(Pobability of being stopped out)*Risk + (1-Probability of being stopped out)*Reward


with the move to break even EV is

EV = -Risk*(Prob of hittin SL beofore moving to BE)+ (Prob of moving to BE)*(Prob of hittin TP oncce SL moved to BE)*Reward