The Break Even Stop is a Psychological Crutch for Newbies

[Redneck]

My two best returning trades I let go away from me by >30% before getting profitable.
There is a lot of truth in what the OP states.

In a volatile / ranging / mean reverting environment - you will get away with it - obviously you did

In a relentless trend move against one's position - you'll get your nuts cut of..., and a margin call to boot

Longs - near the end of 07 = decimated
Shorts - mid 09 = decimated


These 3 - volatile / ranging / mean reverting environment - mask piss poor trading skills



As OP has said more than once

get right

RN

 

[lindq]

Suggestion: Abandon the use of this worthless and ineffectual tactic and set your stop according to market levels, using correct position size for your account. Get right.

My experience is that you are correct.

For sure, setting a break even stop provides a good feeling of relief that the trade can't lose.

But is that the purpose of trading? Is that why we get up in the morning? Not to lose?

 

[MrFuture]

My experience is that you are correct.

For sure, setting a break even stop provides a good feeling of relief that the trade can't lose.

But is that the purpose of trading? Is that why we get up in the morning? Not to lose?

That should ABSOLUTELY be your primary goal. Why? Because when you trade actively all odds are stacked against you. All statistics point to a very high degree of failure for those who daytrade. An active trader who manages not to lose money is rarer than most on this website are willing to realize unfortunately.

 

[Buy1Sell2]

That should ABSOLUTELY be your primary goal. Why? Because when you trade actively all odds are stacked against you. All statistics point to a very high degree of failure for those who daytrade. An active trader who manages not to lose money is rarer than most on this website are willing to realize unfortunately.

No. The primary goal is to win (make money). Part of achieving that is keeping losses small---less than 2% of Total Liquid Net Worth on any one trade/idea. Losses are a necessary part of winning overall. Playing "not to lose" is not the way to be successful. One could trade a system with less than 10% winners and more than 90% losers and still be highly successful. The edge in trading is capital and the management thereof. There is no other edge. Take small losses---Take big winners. Don't get stopped out at breakeven just because you don't want to lose.

 

[Buy1Sell2]

to preserve capital , its ok to use BE stops

Agree---but only to preserve capital.

 

[cornix]

Depends on your trade management rules I guess. B/E stop may work in favor or against the bottom line.

 

[cornix]

Agree---but only to preserve capital.

B1S2,

I remember your old time threads about the holy grail. Wonder if you still trade the same way (RSI on a daily chart)?

 

[Jakobsberg]

Depends on your trade management rules I guess. B/E stop may work in favor or against the bottom line.

Exactly. Across the board rules dont apply to all systems or situations. Thats part of what I thinks makes this hard for noobs. An experienced trader states a rule but they dont understand their system or context.

Having a stoploss at breakeven can give your more room for the trade to work so your not taken out by volatility and may help to keep you psychologically in the trade with the possibility of a big winner if you just let it ride. Depends on the system.

 

[lindq]

That should ABSOLUTELY be your primary goal. Why? Because when you trade actively all odds are stacked against you.

Risk aversion rears its head in many forms. For some it's trading too small. For others, it's taking profits too soon. And for others still, it's raising stops to break even in order to avoid feeling any pain or uncertainty.

The goal of trading is NOT protecting profits. The goal is maximizing profits.

When risk aversion becomes a habitual part of a trader's methodology, it can be really damaging to long term profitability.

 

[Buy1Sell2]

Risk aversion rears its head in many forms. For some it's trading too small. For others, it's taking profits too soon. And for others still, it's raising stops to break even in order to avoid feeling any pain or uncertainty.

The goal of trading is NOT protecting profits. The goal is maximizing profits.

When risk aversion becomes a habitual part of a trader's methodology, it can be really damaging to long term profitability.

Exactly!