Tom Dante

Tom Dante

03-09-2022

11:49

A thread on BE -------- I'm known for always bashing the concept of moving to breakeven on a trade. I wanted to quickly clarify my thoughts on this because contrary to what people might think, they're not black and white.

My mentor said, back in the day, that one of your priorities when trading should be to get to BE as quickly as possible so you had a "free trade". He meant as soon as the market has started to move away from your entry point, move your stop to entry so you cannot lose.

However, I found one thing happened time and time again. As soon as I moved to BE, the psychological pressure was off - the "free trade" felt comforting. But the market would often come back to my entry, hit my BE stop and then move in the direction I had been placed.

So, over time it dawned on me that what works is NOT trying to do what feels comfortable (protect profits) but doing what actually makes sense: moving stops based on price action. Hence you might have heard me say: "Trade the market not your P&L"

But this doesn't mean I am against BE. It simply means I don't think you should use it as an emotional crutch. Moving to BE should make sense from a price action perspective.

So I've opened paint and scribbled some lines to show you what I mean.

If you short a breakout of a level (1) and move to BE at (2), that makes no sense to me. You're putting your stop at a price point the market is likely going to hit and then turn from. This is why many people say they get taken out for BE and then find their original idea worked.

However, let's say you took the same trade entry (1) but moved to BE at point 2 AFTER the market has retested the level, sold off a little, faked out the retest high and made a lower low....that's a whole different proposition that now makes sense.

So to conclude: I am not against BE. I am against moving to BE for no better reason than feeling a bit more comfortable.

If you want to take one more point away from this thread, it's this: I took much from my mentor but I didn't agree with everything he said - in fact I fundamentally disagreed with some of his key principles. Take what you need. Discard what you don't.



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