Moving Stoploss to Break Even

[NoDoji]

Quote from BlackBison:

Moving your stop does not 'protect downside', thats already done with your initial stop.

Right, initial stop is the downside protection you chose. It should be the price at which you believe either a) the tide has turned and you should exit and reverse the other direction, or b) the price momentum you were looking for failed to materialize and you want to get out for a very small loss (or a scratch) and observe the price action for further clues to which side is in control or wants control more.

Once a trade moves in your favor, it's an unrealized "winner". Never let a winner turn into a loser? That insinuates that you're able to pick perfect entries in which price will never wiggle around once you put on the trade. Anyone here who can do that consistently without fail is a psychic genius.

With the exception of breakouts on volatile instruments, most trades run in your favor and then retrace into the red (sometimes to within a tick of your stop loss) before working their way to profit target or better.

If you're a trend follower and use price action to take you into trades off pullbacks, the chances of price moving in your favor and coming all the way back to your entry and even going into the red are very high. If you move your stop to break even, you'll cut your profits. How often do you quickly cut losses when a trade immediately runs against you?

I sold a low tick today. Did I sit there holding and hoping until price hit my max allowable stop loss? Hell no! I got out quickly for a very small loss. When a price action entry fails, bail. When a price action entry moves in your favor out of the gate, let the thing run!

To me, moving a stop to break even is valid when you're playing momentum to carry price immediately to a next level and you want out of the trade if price fails to break that level.

I also believe moving a stop to break even is valid if the break even stop is a level at which you plan to exit and reverse the other direction.

I can't think of any other reasons that make sense. Just moving a stop to break even to prevent a small profit from turning into a loss makes no sense. You place an initial stop because THAT's the price at which you believed the trade is no longer very likely to get to your profit target. If, during the trade, that invalidation level changes, then by all means move your stop, but if not, let the trade do what your edge tells you it does more often than not. Otherwise, your edge loses all its sharpness.

 

[trader198]

never should move stop loss to B/E.
otherwise those little noise move will take out a great trade.
if I long and ride a trend, I will wait until a pullback is there, or my stop loss is token out, after a pullback, you will see the pullback low,then move your stop to there, keep holding, until new high is token out, if nervous or afraid of breakout failure, move stop to new high, to me, I just keep my stop to the pullback low until another pullback is there and themarket starts to climb, then move stop to the second pullback. normally after two to three breakouts, you should not be too greedy, out at the last final pushup, I called it exhaustion push. done, reverse your direction, if the market strong enough,normally it will do some random moves then breakout the new high, and you will be out at B/E, otherwise, it will fall back to where it takes off, so it will be another nice ride, SUPPORT/RESISTANCE.

 

[trader198]

just a kind reminder, market 80~90% time are in cosolidation mode or random move mode, only10%~20% are in orderly move in a big picture.

most people pay too much attention to those little random moves (it is totally unpredicatable) and can not see the big picture (orderly move in a randam chaos under microscope), that anwered why statistically 90% people lose money.

stop loss should be placed where random moves will not exceed.

 

[NoDoji]

Quote from trader198:

why statistically 90% people lose money.

I believe it might be because they move their stop losses to break even on trades that show profit right away (cut winners) and they move their stops farther away on trades that go against them (let losers run).

 

[athlonmank8]

Quote from BlackBison:

Moving your stop does not 'protect downside', thats already done with your initial stop.



Sounds like the usual forum bad advice you hear over and over (along with all the advice about having a high R on trades). All the traders I know that move their stops to breakeven either are breakeven traders or make very small amounts of money in the long run.

All the best retail traders I know who make good money mostly leave stops as they are. In fact, one of the key reasons I myself turned from a breakeven trader into a profitable one was when I stopped tampering too much with stops during trades. After that I started doing very well.

When I'm up 1R i move it to break-even. I don't let it turn into a loser. I don't move it the second it crosses B/E. That's just stupid. But not to protect downside after the market moves in your favor is stupid too.

Maybe that's why you're a seller and a sponsor. Idk.........

I thought your name was familiar..........
http://www.elitetrader.com/vb/showthread.php?s=&threadid=217257

 

[athlonmank8]

Quote from NoDoji:

I believe it might be because they move their stop losses to break even on trades that show profit right away (cut winners) and they move their stops farther away on trades that go against them (let losers run).

Who said right away? He just said to break-even.

You're up 10 ticks, your stop doesn't eventually find its way to B/E? Eventually price action takes you there. But if i'm up significantly I move it to B/E.

 

[rolando87]

I fully agree that moving a stop to breakeven after you have some profit does not make sense since your initial stop loss is the place where you deem the trade to be invalid, and past the support zone, why not leave it there? whereas your original entry point is that place where you thought there was a good support (if long play) area.

The only problem i have is that sometimes i scale in multiple times and i find my position is so much larger now that exiting at my original stop loss area would create too large a loss and would invert my R:R ratio.

Its only then that I may exit out at breakeven because my breakeven area my be in the middle of a range, thus i say screw it because getting stopped out below support would cost me too much. The other possibility and probably the smarter thing to do is to scale out at the same places I scaled in at, but for some reason i rarely do this.

Anyone have any suggestions on how to handle your risk when you scale in instead? I tend to do this a lot, as i believe the more in your direction it goes, the most "right" you are therefore i believe its ok to put a larger then average position.

 

[athlonmank8]

Quote from rolando87:



The only problem i have is that sometimes i scale in multiple times and i find my position is so much larger now that exiting at my original stop loss area would create too large a loss and would invert my R:R ratio.

EXACTLY. For compounding you need to.

Anyone have any suggestions on how to handle your risk when you scale in instead? I tend to do this a lot, as i believe the more in your direction it goes, the most "right" you are therefore i believe its ok to put a larger then average position.

Yes, you need to have precise entries. You need to get in when you KNOW there are going to be more and more traders pushing your position in your favor. Ie. works best in trend-following for me when i'm doing it.

The key is precision. If you're not precise forget moving your stop to B/E. You can't do it.

 

[athlonmank8]

I hate to say it, but I can move a stop to B/E and not feel the worst bit of remorse. I know that if that order is triggered, then my analysis of the market is WRONG. If there's a question, i'll do 1/2 and 1/2 but i'd rather be all-in all out.

The worst thing i've done in the past is to let that damn winner turn into a loser. Because then you feel like one too. Best to trade from a position of strength.

If you don't have an accurate entry and can't trail a stop to B/E then you better learn.

 

[Visaria]

I recall Vic Sperandeo advising to move to b/e once you're close to your target. For instance if you're trading on a 3:1 reward/risk approach and the market is at 2:1, move your stop to b/e.