SCOTT WELSH TRADING BLOG

Please Tell Me I Can Move To Break Even

Please Tell Me I Can Move To Break Even

Jan. 29, 2014

I’ve always loved The House’s money. I don’t know where The House got its money or how much it has, but I love playing with it. Playing with my money is stressful. Playing with The House’s money is invigorating.

Not surprisingly, I love moving to break-even during my trades. If I could, I’m pretty sure I would move to break-even after one tick of profit. The truth is, I don’t particularly enjoy being in trades. Trades never seem to do what I want them to do and they always take too long to do it.

But when I move to break-even, a wave of sweet ecstasy washes over my soul. “I can’t lose! See this, House? I’ve got a whole stash of your money and I’m playing with it right in front of your grubby face! Reap the whirlwind, House! Reap it!!” Or something like that.

Disturbing screaming aside, is it really a good idea to move to break-even? I know what my emotions say. What do the numbers say? Is moving to break-even smart?

For this analysis, I am using my day-trading system (the 15-minute Hornet). The trades in this System are over in a few hours and there usually is at least one trade per day. The stop losses in this System are big, from 50-100 pips, and the target is usually around 20-30 pips (or when momentum stalls). Last, I currently trade eight currency Robots every day.

Here is the data since 2006. For an eight-Robot portfolio with betting on each trade based on a $20K account, the total profits are $140,325. Now let’s see what happens when I add a move to break-even.

I personally want to move to break-even as soon as possible, so let’s move to break-even when I get to 10 pips of profit. If I get to +10 pips, the stop is automatically moved up to my entry price.

Profit comparison:

Current portfolio: $140,325

Break-even after 10 pips: $39,938

Whoa! If you move to break even after 10 pips, you lose $100,000 of profit!

Okay, how about if we move to break even after 20 pips?

Current portfolio: $140,325

Break-even after 20 pips: $78,781

Moving at 20 pips is better, but still $60,000 less!

So what does this mean? For one, it means The House gets its money back. To make the most money possible day-trading the Hornet, we can’t move our stops to break-even. We have to let the trade get to its target with no help whatsoever. We have to play with our own money.

For your System, this is something I want you to seriously consider. I totally understand if you want to move your stops to break even. I do too. But please take some time and do a little testing. Go back to at least 2006 and really look at your trades. There is a strong chance that you are losing big profits if you are moving to break even.

Be careful of playing with The House’s money. It may mean you’re losing some of yours.

Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.