The Question of Moving Stops to Breakeven

Filed under: Learn Forex Trading |

The topic of moving stop losses to breakeven is a really tricky one. It raises a whole host of questions.

 

Should you move your stop losses to breakeven?

If so, when should you move your stop losses to breakeven?

Would it be more profitable in the long run to leave your stop losses alone?

Am I interfering with my trades too much?

 

These are all pertinent questions that require some further attention. I today moved a stop loss to breakeven. It was a trade that moved very quickly, and it went very close to my target area, which was two times my risk. As it was also a setup on the daily chart, the trade had plenty of breathing space.  I decided that if price went back to my entry area, then I would no longer want to be in the trade, given that it had moved so much. Therefore, in order to protect my capital, I moved my stop loss to breakeven. As it turned out, my target was soon met anyway, but moving my stop loss to breakeven just gave me that added piece of mind.

 

Screen shot 2013-01-25 at 10.41.08However, if you move your stop losses to breakeven too soon – yes, you in effect get in a risk free trade; but how does this affect your long term profit/loss figures? Well, by moving your stop losses to breakeven, and not allowing the market to breath, you are likely going to have a lot of breakeven results, along with a small percentage of winners, and quite possibly more losers than winners. Thus, your trading edge could be nullified. So be careful about moving stop losses too soon. It could be the worst thing that you could do – even though it might seem like a safe play.

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