08 Sep Is Moving to Break-Even a Horrible Idea?
Is Moving to Break-Even a Horrible Idea?
Sept. 8, 2023
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In our last Newsletter, we discovered something horrifying.
Moving to break-even is terrible.
At least, it was terrible for a Bollinger Band™ breakout strategy on the GBPJPY.
Putting in the protection of break-even turned a strategy that made $2k into a one that LOST $10k.
It makes me uneasy just thinking about that.
Who wants to trade without the bliss of “no risk/free roll” safety?
It must be an anomaly. This is only true in psychotic 2023.
So, let’s go back 5 years to the start of 2018. We’ll use our simple Master Trend free Band breakout strategy once again that has a 2:1 reward to risk and only enters Long on breaks above an extreme Band reading (3 standard deviations). It does the same for Short trades.
No moves to break-even.
We’ll use 1 lot with no compounding on only the volatile GJPY 1-hour chart.
Here’s the Report via Portfolio Architect from 2018-2023:
That’s a nice amount of hypothetical profit.
Here are the Annual Returns:
Whoa. No losing years.
And here is the same strategy with a break-even built in:
Yikes. Break-even got destroyed.
And here are the Annual Returns:
Maybe the problem with 2023 wasn’t the Central Banks. Maybe the problem was the concept of break-even.
Captain Quint famously said he’ll never put on a life jacket again.
Maybe it’s time for us to say we’ll never put on break-even trade again.
Talk to you soon.
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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.