When to move the stop to break even

[gifropan]

In the past I have often sought and found good advice in this forum. So here I am once again asking for guidance.

In an effort to "sit on my winnings" quite often this is what happens. Suppose I am long based on a trend following system and the market is moving in my direction. At some reasonable profilt level I move my stop to break even. The market comes back stops me out and contiues in the original direction. I get another signal to go long. I take it, the market moves in my direction (Now the original position would have shown quite a healthy pfofit). I move the stop to break even and the same thing happens again. After three or four repetitions I find out that if I had left the original stop in place I would have had profit beyond my original target.

The question is if a position is in profit, but not met your target yet, when do you move your initial stop loss to break even.

I shall await and be grateful for your guidance

 

[lindq]

Quote from gifropan:



I shall await and be grateful for your guidance

Your experience seems to indicate that you are certainly moving your stops to even too soon, and they are getting hit within a normal trading range.

In my overall experience through thousands of trades, as a general rule I'd say the best strategy is to set an initial stop at a comfortable level below entry, and move it ONLY when there is a considerable profit above entry that is outside a likely trading range where you might get hit. Then move it just enough to let it cover your spread and commission if you are hit, then let the stock run.

It's also a good idea to keep a close eye on the overall market. How strong is the market? Are you at risk of a reversal? Is it strong enough that you can raise your stop at all? And if in doubt, best just to leave your stop at the initial level until you get a "go" sign from the market.

 

[Laissez Faire]

Never let a winner turn into a loser.

Never move your stop to breakeven right after entry so that you never win.

Find a happy medium.

Market research is the answer.

If you are a nimble trader, you can get back in if you got stopped/trapped out of a good trade at breakeven or higher. Always value what you have and manage risk.

 

[Buy1Sell2]

Quote from gifropan:



The question is if a position is in profit, but not met your target yet, when do you move your initial stop loss to break even.

Beak even stop is a useless stop unless the market action shows that price to be meaningful. Over 99 percent of the time, breakeven stop is useless and designed for the beginner. Thank your for you time.

 

[Visaria]

Trader Vic says if your target is 3:1 reward risk and the market is at 2:1, then pull up stop to b/e.

So basically, if the market is closing in on your target, pull up the stop.

If you don't have a target (trend following typically doesn't) , then no, you don't move your stop to b/e. Instead you may be adding contracts and trailing the stop, but it depends on your system.

 

[uexkuell]

First congrats that you reach b/e.

Many people always enter into the wrong direction and never have a chance to reach b/e.


The old "never let a winner turn into a looser" seems good advice to me.


What you describe is what happens to me all the time.
The markets are very competitive and some people know where traders set their stops.


Something can be done to turn these trades into winners (assuming a strategy with a high win ratio):
- Enter bigger
- Scale out the bigger portion (may range from 3/4 to 9/10) of your position early as soon as you are in the winning zone (some kind of scalping)
- If the initial position was big enough it may even give you the cushion to allow the remaining position to move a little against you without loosing the profit completely (and through this allow a home run once in a while).