Since no two people trade exactly the same way, it's impossible to say whether this is good or bad. I know that moving the stop to breakeven works for me, because it allows me to let a portion of my winning trade run. I also take a partial profit when I move the stop up, locking in at least a small winner. But I don't move the stop up until I'm up by a certain amount...until I started doing this, I was always getting out too early.
Moving Stop Up to Breakeven: Helpful or Harmful?
- Thread starter jbob
- Start date
I see several problems with breakeven stops (intraday trading):
1. Often they are placed too close to noise. Rarely do markets move strongly in one direction without at least a pullback (or two). Traders who use close breakeven stops therefore need to have a plan on how to get back onboard in case one is stopped out prematurely.
2. Since many traders use similar techniques, many of them place their stops at the same place. Naturally, the market moves toward those stops, and as a result most traders end up losing. I see it every day with the ES. Market breaks out of congestion, goes north a few points, and then goes right back to the breakout area, ensuring that all breakeven traders just lost a commission.
Of course, that area would represent a low-risk area for longs!
3. Often they are placed too soon after the trade is put on. ES goes south a few points, and then the trader--happy to be short, yet anxious about losing that $100 a contract or so--puts in a breakeven stop. New trades need room to breathe.
Yes, that means that sometimes small winners end up small losers, but it is difficult to have the necessary big winners (handles, not ticks) if one abuses the breakeven stop.
Initial stops should be placed far enough from noise, yet close enough so one would be out once the market confirms that the trader's reason for putting on the trade is no longer valid.
Stops should be trailed, placed at an area that would represent change of trend.
The market does not care about my "breakeven" stop or that of anyone else. It will do as it wishes.
1. Often they are placed too close to noise. Rarely do markets move strongly in one direction without at least a pullback (or two). Traders who use close breakeven stops therefore need to have a plan on how to get back onboard in case one is stopped out prematurely.
2. Since many traders use similar techniques, many of them place their stops at the same place. Naturally, the market moves toward those stops, and as a result most traders end up losing. I see it every day with the ES. Market breaks out of congestion, goes north a few points, and then goes right back to the breakout area, ensuring that all breakeven traders just lost a commission.
Of course, that area would represent a low-risk area for longs!
3. Often they are placed too soon after the trade is put on. ES goes south a few points, and then the trader--happy to be short, yet anxious about losing that $100 a contract or so--puts in a breakeven stop. New trades need room to breathe.
Yes, that means that sometimes small winners end up small losers, but it is difficult to have the necessary big winners (handles, not ticks) if one abuses the breakeven stop.
Initial stops should be placed far enough from noise, yet close enough so one would be out once the market confirms that the trader's reason for putting on the trade is no longer valid.
Stops should be trailed, placed at an area that would represent change of trend.
The market does not care about my "breakeven" stop or that of anyone else. It will do as it wishes.
It is just a matter of style and personal preference I think. I tend to only move stops to break even once the trade is very deep in profit as a worse case scenario. Chances are usually good that I will get an exit signal anyway or hit my set price target and get out of the trade in normal course but in case of a sudden price shock you don't let a profitable trade turn into a loser. I do not do it with every trade and I would agree that placing a stop at break even too soon is not a good practice due to market noise. I certainly wouldn't recommend a protective stop to protect a profit of a few hundred per contract either.
The best thing that happened to my trading was when I STOPPED moving my stops to break even.
Manage the trade before you enter. Set your stops and limits and let nature take its course. If you try to manage the trade once you're in it, you'll just scew it up. Spend the time looking for the next trade.
Some times a winner will turn into a looser, but.... oh well. In the long run you'll be better off.
Just my opinion
~Mike
Manage the trade before you enter. Set your stops and limits and let nature take its course. If you try to manage the trade once you're in it, you'll just scew it up. Spend the time looking for the next trade.
Some times a winner will turn into a looser, but.... oh well. In the long run you'll be better off.
Just my opinion
~Mike
<i>"the reality of it is you will not have the chance to do this many times...</i>
... until you become a skilled trader. Then you will be faced with the decision to trail stops, when and where on almost every trade"
Hope you don't mind me finishing that incomplete statement.
Trading the ES specifically, I have missed = lost a modest fortune in the past year by trailing to entry / par once a trade goes +2pts in favor. Taking the high-odds trades (yes, they can be identified as such) and just holding them until they work results in many of them working like crazy. Not all, but enough of them by far.
It's the exhaustive back & fill congestion of ES that frustrates most emini traders, myself included. The best solution for that is holding each trade with initial stop in place until it either hits that stop and gives the next signal, or finally takes off and moves directionally as we expected to begin with.
We did enter the trade because we expected a directional move, didn't we? I hope we didn't enter a trade fully expecting sideways chop before getting stopped out at max loss. That wouldn't make much sense.
If we expect enough out of any trade to the point we are willing to risk $$ on it in the first place, trust every one of them enough to move in favor eventually. Some won't, but some will. The ones that will go far enough to obliterate all the ones that don't
... until you become a skilled trader. Then you will be faced with the decision to trail stops, when and where on almost every trade"
Hope you don't mind me finishing that incomplete statement.
Trading the ES specifically, I have missed = lost a modest fortune in the past year by trailing to entry / par once a trade goes +2pts in favor. Taking the high-odds trades (yes, they can be identified as such) and just holding them until they work results in many of them working like crazy. Not all, but enough of them by far.
It's the exhaustive back & fill congestion of ES that frustrates most emini traders, myself included. The best solution for that is holding each trade with initial stop in place until it either hits that stop and gives the next signal, or finally takes off and moves directionally as we expected to begin with.
We did enter the trade because we expected a directional move, didn't we? I hope we didn't enter a trade fully expecting sideways chop before getting stopped out at max loss. That wouldn't make much sense.
If we expect enough out of any trade to the point we are willing to risk $$ on it in the first place, trust every one of them enough to move in favor eventually. Some won't, but some will. The ones that will go far enough to obliterate all the ones that don't
At last, something useful from this site. I'm usually 'all in' or 'all out', but I like this strategy a lot. Thanks Cocaine.
<i>"cover some of your position (50%) for the profit you normally would, then hold the remaining portion at your original stop? Placing a stop at breakeven is trading your P&L rather than the real points of interest for price."</i>
Here's a scenario which happens in the ES all the time, day after day:
Sell signal ES 1350.00
Trade entered with initial stop at 1352.00
Price action drops to 1347.75, retraces to 1352.50 and drops to 1340.00
Sell signal ES 1343.00
Trade entered with initial stop at 1345.00
Price action drops to 1340.75, retraces to 1343.00 and drops to 1324.00
Buy signal ES 1327.00
Trade entered with initial stop at 1325.00
Price action rises to 1327.25, retraces to 1322.50 and rises to 1337.00
Buy signal ES 1334.00
Trade entered with initial stop at 1332.00
Price action rises to 1337.25, retraces to 1333.75 and rises to 1352.00
*
In the life-like scenario above, trailing 1/2 a position to +2pts and the other 1/2 at entry(par) would result in +1pts net per contract cumulative on the first short and first long.
The second trades would likewise yield +2pts on 1/2 position, stopped at par second 1/2 for net result of +1pt cumulative per contract.
Net result after all four trades is +1pt per contract on four round turns = +4pts per contract total. Not bad at all.
**
Holding initial stop at -2pts and not trailing at all would result in total of -4pts cumulative per contract across first short and first long trades.
The second trades held for +4pts to +8pts objective would be +4pts on the second short, +8pts on the second long with full positions.
Net result after all four trades is +8pts per contract on four round turns = +8pts per contract total.
The two -2pt trades were washed with one +4pt trade, and the +8pt trade made the day <b>two times bigger = more successful</b> than the scaled-out efforts.
Here's the catch: traders place more emphasis on the current trade's success than they do the next trade ahead. Traders place too much emphasis on not losing in this trade than they do profiting overall across all trades.
Trailing out / scaling out in any form is just our way of dealing with the human traits of fear=greed, same emotion. It is not the most optimal way to trade, it is what we use to crutch our inherent weakness... all of us with no exceptions.
Most trades are overanxious to get in a trade to begin with. But once they're in, something mystical happens. Suddenly they cannot wait to get out. What was once anxiety to enter is now anxiety to exit. Fear of loss = greed manifested on both ends.
Learning to cope with those emotional tugs is really what makes for optimal success overall. They are at the crux of trade management, or mismanagement alike.
Here's a scenario which happens in the ES all the time, day after day:
Sell signal ES 1350.00
Trade entered with initial stop at 1352.00
Price action drops to 1347.75, retraces to 1352.50 and drops to 1340.00
Sell signal ES 1343.00
Trade entered with initial stop at 1345.00
Price action drops to 1340.75, retraces to 1343.00 and drops to 1324.00
Buy signal ES 1327.00
Trade entered with initial stop at 1325.00
Price action rises to 1327.25, retraces to 1322.50 and rises to 1337.00
Buy signal ES 1334.00
Trade entered with initial stop at 1332.00
Price action rises to 1337.25, retraces to 1333.75 and rises to 1352.00
*
In the life-like scenario above, trailing 1/2 a position to +2pts and the other 1/2 at entry(par) would result in +1pts net per contract cumulative on the first short and first long.
The second trades would likewise yield +2pts on 1/2 position, stopped at par second 1/2 for net result of +1pt cumulative per contract.
Net result after all four trades is +1pt per contract on four round turns = +4pts per contract total. Not bad at all.
**
Holding initial stop at -2pts and not trailing at all would result in total of -4pts cumulative per contract across first short and first long trades.
The second trades held for +4pts to +8pts objective would be +4pts on the second short, +8pts on the second long with full positions.
Net result after all four trades is +8pts per contract on four round turns = +8pts per contract total.
The two -2pt trades were washed with one +4pt trade, and the +8pt trade made the day <b>two times bigger = more successful</b> than the scaled-out efforts.
Here's the catch: traders place more emphasis on the current trade's success than they do the next trade ahead. Traders place too much emphasis on not losing in this trade than they do profiting overall across all trades.
Trailing out / scaling out in any form is just our way of dealing with the human traits of fear=greed, same emotion. It is not the most optimal way to trade, it is what we use to crutch our inherent weakness... all of us with no exceptions.
Most trades are overanxious to get in a trade to begin with. But once they're in, something mystical happens. Suddenly they cannot wait to get out. What was once anxiety to enter is now anxiety to exit. Fear of loss = greed manifested on both ends.
Learning to cope with those emotional tugs is really what makes for optimal success overall. They are at the crux of trade management, or mismanagement alike.
Here's my take on this topic.
There is not right or wrong. All trader's SHOULD have a set of rules with directs their trade management and only tweak those rules if the market conditions change. It's easy to look in HINDSIGHT and say this trade was a huge runner, that one was a killer (thank God for my stop) and so on.
Before the recent upheaval and huge top to bottom swings, the ES in particualr was a fairly range bound market and getting a +10 net change was not the norm. Okay.
Personally, I think entires are infinitely more important than exits, especially in high volatility like we've recently witnessed. My method is pretty accurate and I don't often face the prospects of a quick stopout, so the challenge is where to take the profit before it evaporates. Also, I feel like a moron for letting a winner turn into a loser. Remember, this is real money here, not some video game. Also, I am extremely skeptical of those traders who profess to now where the market is going, so they can exit their trade at some forecasted level many many points away from their entry. Some pros believe that every trade is a scalp unless proven otherwise, thus they get to breakeven quickly and then manage the trade for profit.
Have you ever watched a skilled--or at least lucky--gambler on a hot craps or black jack table? He will always take back chips to break even or a small profit before pressing his bets to play with house money. Why? Fortune and lady luck can go away at anytime and the GOAL is to take the casino's money, not to see if this shooter can hold the dice for 30 minutes. It's called money managment. Ultra important in a negative expectancy game.
Which gets me to the point I missed because I rambled a bit. This business is all about MAKING MONEY, period. You don't need to hit triples and home runs to make a great living--singles and a few doubles will be fine. With proper money management and capturing only 2 ES points a day, you will earn a lot more than 90% of Americans if you work your way up to a reasonable size such as 8 contracts.
Have a plan and rules. Obey that plan. Trade it every single day and watch your acount grow. Good luck to all.
There is not right or wrong. All trader's SHOULD have a set of rules with directs their trade management and only tweak those rules if the market conditions change. It's easy to look in HINDSIGHT and say this trade was a huge runner, that one was a killer (thank God for my stop) and so on.
Before the recent upheaval and huge top to bottom swings, the ES in particualr was a fairly range bound market and getting a +10 net change was not the norm. Okay.
Personally, I think entires are infinitely more important than exits, especially in high volatility like we've recently witnessed. My method is pretty accurate and I don't often face the prospects of a quick stopout, so the challenge is where to take the profit before it evaporates. Also, I feel like a moron for letting a winner turn into a loser. Remember, this is real money here, not some video game. Also, I am extremely skeptical of those traders who profess to now where the market is going, so they can exit their trade at some forecasted level many many points away from their entry. Some pros believe that every trade is a scalp unless proven otherwise, thus they get to breakeven quickly and then manage the trade for profit.
Have you ever watched a skilled--or at least lucky--gambler on a hot craps or black jack table? He will always take back chips to break even or a small profit before pressing his bets to play with house money. Why? Fortune and lady luck can go away at anytime and the GOAL is to take the casino's money, not to see if this shooter can hold the dice for 30 minutes. It's called money managment. Ultra important in a negative expectancy game.
Which gets me to the point I missed because I rambled a bit. This business is all about MAKING MONEY, period. You don't need to hit triples and home runs to make a great living--singles and a few doubles will be fine. With proper money management and capturing only 2 ES points a day, you will earn a lot more than 90% of Americans if you work your way up to a reasonable size such as 8 contracts.
Have a plan and rules. Obey that plan. Trade it every single day and watch your acount grow. Good luck to all.