The Break Even Stop is a Psychological Crutch for Newbies

[deaddog]

It's normal that you miss all the good trades when you keep it simple. Your statement of the misses confirms that your system works very well. But why are you trading if you miss all the good trades? Are you a masochist?

I manage to make enough mediocre trades to achieve my trading goals.

 

[i am nobody]

I manage to make enough mediocre trades to achieve my trading goals.

Imagine what would happen if you would take the real profitable trades too....


You should probably have to go in therapy.

 

[S-Trader]

I think most people see this too simple.

You may have a risk free trade but maybe you will damage your long term profits. For your risk free trade you will have a price to pay. In other words, you think that you protect your capital, but maybe you miss profits because of that. These missed profits are also a protection for your capital, because the more profits you have the less risk that you will lose your capital. But you gave it away by using break even or trailing stops.

I think a lot of us understand where you're coming from, from a purely number$ standpoint. But consider also that when humans are involved, the "price to pay" not only involves more costs than pure $$, but also works both ways. There are emotional, time , opportunity and other *costs* (/benefits) to consider as well.

A few examples:
- I've seen some excellent traders scalp like crazy *when they wanted/needed to* to get out of a hole, or maybe just in a dull market, even though their normal style was not scalping. They made it look so easy that I asked them, "why don't you just do that all the time? It looks like you could just bank every day??" Their response was basically that yeah, they probably could... but that scalping like that was just too much of a mental/emotional/physical grind for them, and they simply chose not to do that on a regular basis.

- I think a lot of us at some point have seen top traders who consistently make $X day after day, and wondered why they didn't just size up to make $2X, $3X, etc.? Of course, there are other practical issues that come up at some point when trading larger sizes... but when I raised (or others) raised the question as to why not just size up, their typical response was they were emotionally and fiscally comfortable at the level they were at. At larger sizes, they just had trouble dealing emotionally with the larger $ amounts involved... even if on a relative basis, things were essentially unchanged.

- Some traders only trade the first X minutes/hours of the session, and then call it a day. Aside from the opening hours having perhaps the most trading opportunities... a lot of them could arguably make even more $$ by trading longer. But they choose not to, simply because they want to do other things with their time.

So even if from a pure $$ standpoint it *might* make sense for some traders to go with something other than a b/e stop management style, maybe for them the other alternative management styles simply don't fit their personality/temperament? And/or maybe they're OK with what they're currently making $$-wise? If you read some of the responses carefully, I think a lot of them are basically trying to tell you that.

 

[i am nobody]

I think a lot of us understand where you're coming from, from a purely number$ standpoint. But consider also that when humans are involved, the "price to pay" not only involves more costs than pure $$, but also works both ways. There are emotional, time , opportunity and other *costs* (/benefits) to consider as well.

A few examples:
- I've seen some excellent traders scalp like crazy *when they wanted/needed to* to get out of a hole, or maybe just in a dull market, even though their normal style was not scalping. They made it look so easy that I asked them, "why don't you just do that all the time? It looks like you could just bank every day??" Their response was basically that yeah, they probably could... but that scalping like that was just too much of a mental/emotional/physical grind for them, and they simply chose not to do that on a regular basis.

- I think a lot of us at some point have seen top traders who consistently make $X day after day, and wondered why they didn't just size up to make $2X, $3X, etc.? Of course, there are other practical issues that come up at some point when trading larger sizes... but when I raised (or others) raised the question as to why not just size up, their typical response was they were emotionally and fiscally comfortable at the level they were at. At larger sizes, they just had trouble dealing emotionally with the larger $ amounts involved... even if on a relative basis, things were essentially unchanged.

- Some traders only trade the first X minutes/hours of the session, and then call it a day. Aside from the opening hours having perhaps the most trading opportunities... a lot of them could arguably make even more $$ by trading longer. But they choose not to, simply because they want to do other things with their time.

So even if from a pure $$ standpoint it *might* make sense for some traders to go with something other than a b/e stop management style, maybe for them the other alternative management styles simply don't fit their personality/temperament? And/or maybe they're OK with what they're currently making $$-wise? If you read some of the responses carefully, I think a lot of them are basically trying to tell you that.

I don't take the $ standpoint. My aim in trading is:

• Have as little losing trades as possible. Reduces emotions and reduces stress. And saves capital.
• Have a system with a very high rate of good signals. Reduces emotions and reduces stress. Especially if you know in advance that you will most likely make money again in this trade. And if signals are good you can try many times for free. This is almost free risk (because free risk does not exist).
• Have a system that gives constant reliable information whether the trade goes well or not. I hate to trade "blind". Good information reduces emotions and reduces stress.
• Try to make as less trades as possible but take every big move. Reduces emotions and reduces stress, because every entry brings stress and tension. As daytrader I do on average 2-3 trades a day and try to take every big move. So I don't become crazy by sitting in front of my screens all the time being afraid to miss something.

The result of all this is of course that this system makes good money, but that was not my initial aim. It was a result of what I was aiming for, comfortable trading with low risk. Most of the time I am very relaxed because I know exactly what I should do (my stop is already fixed before entering a trade). If I don't want to trade I don't trade, it is as simple as that. But if I trade I never use a break even stop, I follow my rules to take all I can get. I have no other choice because the only thing that I can do is follow my rules. The alternative is gamble.
The fact that people don't want to size up or don't want to trade all day is irrelevant concerning the break even stop because the break even stop has to do with the system that you use to trade. So no matter what size, or how long a day you trade, this has no impact on your break even stop.

My mother tongue is not English and I have a low education, so maybe I do not always understand exactly what people try to say. So maybe what I wrote makes no sense to what others wrote.
I wish I was an elitetrader.

 

[S-Trader]

I don't take the $ standpoint. My aim in trading is:

• Have as little losing trades as possible. Reduces emotions and reduces stress. And saves capital.
• Have a system with a very high rate of good signals. Reduces emotions and reduces stress. Especially if you know in advance that you will most likely make money again in this trade. And if signals are good you can try many times for free. This is almost free risk (because free risk does not exist).
• Have a system that gives constant reliable information whether the trade goes well or not. I hate to trade "blind". Good information reduces emotions and reduces stress.
• Try to make as less trades as possible but take every big move. Reduces emotions and reduces stress, because every entry brings stress and tension. As daytrader I do on average 2-3 trades a day and try to take every big move. So I don't become crazy by sitting in front of my screens all the time being afraid to miss something.

The result of all this is of course that this system makes good money, but that was not my initial aim. It was a result of what I was aiming for, comfortable trading with low risk. Most of the time I am very relaxed because I know exactly what I should do (my stop is already fixed before entering a trade). If I don't want to trade I don't trade, it is as simple as that. But if I trade I never use a break even stop, I follow my rules to take all I can get. I have no other choice because the only thing that I can do is follow my rules. The alternative is gamble.
The fact that people don't want to size up or don't want to trade all day is irrelevant concerning the break even stop because the break even stop has to do with the system that you use to trade. So no matter what size, or how long a day you trade, this has no impact on your break even stop.

My mother tongue is not English and I have a low education, so maybe I do not always understand exactly what people try to say. So maybe what I wrote makes no sense to what others wrote.
I wish I was an elitetrader.

I only saw you refer to "profits" (7 times) in the post I responded to -- not "emotions" or "stress" -- so maybe I misunderstood your intent. OK, fine... so you choose to manage your trades a certain way at least in part to "reduce stress and reduce emotions." Why is it wrong for some traders to use a breakeven stop for the same reasons? Of the four bullet point "aims" you provided, I don't see a single one that might necessarily differ from those of successful traders I've seen who employ a breakeven stop.

The examples I brought up re: sizing up, not trading all day, etc. were made in reference to there being other reasons why people might choose to use a breakeven stop that go beyond simply maximizing profit$ -- *not* in direct reference to use of a breakeven stop itself, obviously.

There are a million ways to trade successfully. It seems pretty close-minded to make broad-brush statements like "break even stops are the worst thing you can do"... especially when many of us have likely seen long-term, consistently profitable traders use them successfully in some manner/form and be totally fine with their results. If something works for some people and they're contented with the results, who are we to judge? For all you know, they may be making more $$ than you, and be happier too.

 

[i am nobody]

I only saw you refer to "profits" (7 times) in the post I responded to -- not "emotions" or "stress" -- so maybe I misunderstood your intent. OK, fine... so you choose to manage your trades a certain way at least in part to "reduce stress and reduce emotions." Why is it wrong for some traders to use a breakeven stop for the same reasons? Of the four bullet point "aims" you provided, I don't see a single one that might necessarily differ from those of successful traders I've seen who employ a breakeven stop.

The examples I brought up re: sizing up, not trading all day, etc. were made in reference to there being other reasons why people might choose to use a breakeven stop that go beyond simply maximizing profit$ -- *not* in direct reference to use of a breakeven stop itself, obviously.

There are a million ways to trade successfully. It seems pretty close-minded to make broad-brush statements like "break even stops are the worst thing you can do"... especially when many of us have likely seen long-term, consistently profitable traders use them successfully in some manner/form and be totally fine with their results. If something works for some people and they're contented with the results, who are we to judge? For all you know, they may be making more $$ than you, and be happier too.

There are two different things that should be separated from each other:

1. people use a systematic way to trade, let's call it a "system"
2. people can also decide when, how long .... They want to trade, let's call it "quality of live".

You link them together, but these are separate things.

You first decide about quality of live (stress , emotions, how many hours or day to trade, being happy, what to trade, how much money...).

And when you took a decision on that you start to trade. You don't use break even stops to decide about your quality of live. Break even stops are part of the "system" you use for trading. That's why I speak about profits. Profits are part of the trading system.

I wrote earlier: When you have a system for trading you should check a number of things. One of these things is: where should I put a stop? To answer that question you should take a big number of trades and for each trade you should watch what the open max profit and open max loss was. With that information you can define where the optimal stop should be. Due to this testing you will never miss a good trade by being stopped out. And if you are stopped out you know that statistically in the long run you will maximize your profits, because in the long run putting the stop according to the testing will generate more profits in total.

If you calculate your stop in this way, it can be proven mathematically that this is always better (in the long run) than a break even stop. So if you use this method your results will always be better, so you will be more happy and make more money.
It has nothing to do with MY results being better or worse or ME being happier or not. I never pretended to make more money or to be happier. By analyzing their test data instead of using a break even stop THEIR own results will be better, THEY will make more money and THEY will be happier.
For many years my grandfather was very happy when he had a bicycle, but the day he discovered cars he was more happy with his car. It increased his quality of live. But some people are happy with what they have and have no motivation to try to improve their live. Or they are not open to changes.

 

[S-Trader]

How can you define what trading system is best for you without also deciding what you want/don't want regarding (what we'll agree to calling) "quality of life"? A system that can't achieve your overall goals regarding "quality of life," at least at the current point in your life, seems kinda pointless to pursue, right?

Once again, you miss the point I was trying to make. Yes, I totally agree -- a different style of management *may* definitely prove to be mathematically superior. That does *not* necessarily make it "right" if it fails to meet your other goals... nor does it make "breakeven stops the worst thing you can do"... it all depends on the individual, and what he/she wants out of trading.

You state: "By analyzing their test data instead of using a break even stop THEIR own results will be better, THEY will make more money and THEY will be happier." Although I agree that analyzing and comparing various management styles is a worthwhile and useful exercise to do, your statement contains several blanket presumptions that could very well not be true, IMO.

First of all, how do you know that at least some of the traders who use a breakeven stop haven't already analyzed their results? You *presume* that "their results WILL be better" and "they WILL make more money" if they *don't* use a breakeven stop. How could *you* even know that??

Secondly, you again equate making more money with more happiness. Didn't we just go over that whole argument about how making more money does not necessarily equate to more happiness (less stress, less emotions, etc.) for some people?? The traders I know who use breakeven stops often cite having less in-trade stress as one of their reasons for doing so. They're willing to forego the possibility of using alternative management approaches with potentially superior $$ results so they can feel less stressed. Or maybe they will even trade more poorly overall if they're constantly under more stress?

Totally random examples: What if going to a "take 1/2 at +2R, back half BBB trail beyond +2R" (or any other method "X") proves to be mathematically superior... but the person gets too stressed out managing the trade that way? What if a pivot trail proves to be mathematically superior, but the trader wants to trade for no longer than the first X hours of each day, and pivot trails might require them to trade longer? Etc., etc.

Or what if... based on a particular trader's style/setups... a breakeven stop does in fact prove to be mathematically superior, at least to the alternatives that he/she is aware of?

I'm definitely not against motivation, being open to change, etc. -- but you make so many presumptions about how other people should trade, what's best for them, what should make them happy, etc... and they're all apparently based on *your own personal* frame of reference and perception of reality, without even considering that other people are different from you.

BTW, there are a fair amount of very intelligent, "successful" people out there who are switching to bikes from cars... for the very reasons that they are open to change, and want to improve their lives.

 

[i am nobody]

How can you define what trading system is best for you without also deciding what you want/don't want regarding (what we'll agree to calling) "quality of life"? A system that can't achieve your overall goals regarding "quality of life," at least at the current point in your life, seems kinda pointless to pursue, right?

Once again, you miss the point I was trying to make. Yes, I totally agree -- a different style of management *may* definitely prove to be mathematically superior. That does *not* necessarily make it "right" if it fails to meet your other goals... nor does it make "breakeven stops the worst thing you can do"... it all depends on the individual, and what he/she wants out of trading.

You state: "By analyzing their test data instead of using a break even stop THEIR own results will be better, THEY will make more money and THEY will be happier." Although I agree that analyzing and comparing various management styles is a worthwhile and useful exercise to do, your statement contains several blanket presumptions that could very well not be true, IMO.

First of all, how do you know that at least some of the traders who use a breakeven stop haven't already analyzed their results? You *presume* that "their results WILL be better" and "they WILL make more money" if they *don't* use a breakeven stop. How could *you* even know that??

Secondly, you again equate making more money with more happiness. Didn't we just go over that whole argument about how making more money does not necessarily equate to more happiness (less stress, less emotions, etc.) for some people?? The traders I know who use breakeven stops often cite having less in-trade stress as one of their reasons for doing so. They're willing to forego the possibility of using alternative management approaches with potentially superior $$ results so they can feel less stressed. Or maybe they will even trade more poorly overall if they're constantly under more stress?

Totally random examples: What if going to a "take 1/2 at +2R, back half BBB trail beyond +2R" (or any other method "X") proves to be mathematically superior... but the person gets too stressed out managing the trade that way? What if a pivot trail proves to be mathematically superior, but the trader wants to trade for no longer than the first X hours of each day, and pivot trails might require them to trade longer? Etc., etc.

Or what if... based on a particular trader's style/setups... a breakeven stop does in fact prove to be mathematically superior, at least to the alternatives that he/she is aware of?

I'm definitely not against motivation, being open to change, etc. -- but you make so many presumptions about how other people should trade, what's best for them, what should make them happy, etc... and they're all apparently based on *your own personal* frame of reference and perception of reality, without even considering that other people are different from you.

BTW, there are a fair amount of very intelligent, "successful" people out there who are switching to bikes from cars... for the very reasons that they are open to change, and want to improve their lives.

This discussion becomes meaningless.
Quality of life can have various meanings for various people. So in the end there will always be a person for whom the following things can be said:
some like to make money, some like to lose money
Some get stressed from a good system, some get stressed from a bad system
Some like a car, some like a bike
Some like to stay alive, some like to die
Some like pain, some don't

When you write "what if" or "I presume" or "there are" we can have endless discussions. Because these are hypothetical or very vague statements that you can use to"proof" anything.

This discussion now goes the way the "trends do not exist" discussions go. Never ending story with no added value at all. A total loss of energy. So not interesting at all for me.

 

[S-Trader]

This discussion becomes meaningless.
Quality of life can have various meanings for various people. So in the end there will always be a person for whom the following things can be said:
some like to make money, some like to lose money
Some get stressed from a good system, some get stressed from a bad system
Some like a car, some like a bike
Some like to stay alive, some like to die
Some like pain, some don't

When you write "what if" or "I presume" or "there are" we can have endless discussions. Because these are hypothetical or very vague statements that you can use to"proof" anything.

This discussion now goes the way the "trends do not exist" discussions go. Never ending story with no added value at all. A total loss of energy. So not interesting at all for me.

Agree with your ending sentiments (only), even though you still don't get it because you're trapped within the small world of your own reality. Hypothetical, but very reasonable/plausible "what if?" examples are simply used to demonstrate exceptions to your broad-brush generalizations. That you either don't realize that, or simply dismiss them out of hand, show that you choose to live within the mental constraints of your own little world, vs. realizing or acknowledging that there is much more out there than just you.

<--- R E A L (your reality) I T Y --->

If anything, the burden of proof should be on the one making the broad-brush statements -- you. Maybe you just haven't been around long enough, or known enough traders with other styles, to realize that there's much more to trading than just what any one individual like *you* does or knows. Anyone who's traded longer than a cup of coffee knows how much variation there is in trading -- basically, as many different styles, methods, goals, and paths to "success" as there are different human beings. Maybe one day you'll realize that, even though that's not a necessary realization for attaining your own success in trading or life.

And I do wish you continued *success* in both, however you choose to define that...

 

[fxwannaB]

Couldn't disagree more. Rule #1, don't lose money. Rule #2, never forget about rule #1.

Couldn't disagree more. Rule #1, follow your plan. Rule #2, follow the damn plan !..jeez...