Break-Even is a Killer

Break-Even is a Killer

Sept. 6, 2023

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When it comes to trading Forex breakouts, specifically on the GBPJPY, 2023 has been my least favorite year ever.

When the Bear Market hit in 2022, something shifted in the Fx market.

All of a sudden, Central Banks in England and Japan got very hands-on and actively tried to manipulate interest rates.

And all of a sudden, breakouts started to immediately reverse with anger.

Since the middle of 2022, breakouts on GJPY have been hammered like it was somebody’s job.

It’s been bad for those types of strategies.

Or has it?

Because I’m a human being, I like strategies that move to break-even.

Humans know nothing feels better than getting a “free ride” on a “no risk” trade that’s had its stoploss moved up.

And in the awful period between 2022 and 2023, break-even should be exactly what the doctor ordered.

The Central Banks want to roil the market? No problem. I’ll just move to break-even and protect myself from crippling whipsaws. 

Mission accomplished?

Not so fast.

So much of trading is counterintuitive.

We want to get out with a small profit, but we shouldn’t.

We want to protect our winning trade with a move to break-even, but is it really the best thing to do?

Let’s take a look.

Here’s a simple strategy created by the Master Trend robot. It uses Bollinger Bands™ and the highly-volatile GBPJPY on the 1-hour chart. It gets in when the Bands get to extreme levels (3 standard deviations) and goes for a big profit target that’s more than twice as big as the stop loss.

Here’s a 2023 example of a winning trade:

This example does NOT have a break-even built in.

And here’s the Performance Report via Portfolio Architect from December 2022 through August 2023 trading 1 lot each time:

It’s not a million dollars but it’s handled the reversals and made a decent profit.

But it’s so unsafe. There’s no break-even to protect our trades in such a hard market.

Here’s the same strategy with a break-even built in. The protection kicks in about halfway to our profit target.

Yikes.

The same strategy got killed– simply because a move to break-even was used.

That’s crazy.

But is it just a 2023 anomaly?

In our next Newsletter, we’ll go back farther to see if break-even is as evil as it’s been this year.

Talk to you soon.

 

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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.