Are Breakeven Stops Worth The Effort?

About the Author Kevin Davey

Kevin Davey is a professional trader and a top performing systems developer. Kevin is the author of “Building Algorithmic Trading Systems: A Trader's Journey From Data Mining to Monte Carlo Simulation to Live Trading” (Wiley Trading, 2014.) . He generated triple digit annual returns 148 percent, 107 percent, and 112 percent in three consecutive World Cup of Futures Trading Championships® using algorithmic trading systems.His web site, www.kjtradingsystems.com, provides trading mentoring, trading signals, and free trading videos and articles. He writes extensively in industry publications such as Futures Magazine and Active Trader and was featured as a “Market Master” in the book The Universal Principles of Successful Trading by Brent Penfold (Wiley, 2010). Active in social media, Kevin has over 15,000 Twitter followers. An aerospace engineer and MBA by background, he has been an independent trader for over 20 years. Kevin continues to trade full time and develop algorithmic trading strategies.

  • BlueHorseshoe says:

    Hi Kevin,

    Is there a reason why you haven’t just used the “setbreakeven” reserved word in your EasyLanguage code?

  • Kevin says:

    Hi Blue –

    The big issue with Breakeven stop is that it can’t be adjusted. I wanted to include the ability to “breakeven” with a small profit. That is why I used the code I did. I have used breakeven reserved word on occasion, though.

    Thanks for the question!
    Kevin

  • Ryan says:

    I find that stops in general are overrated and breakeven stops are killers for my trading and abandoned the concept long ago. The issue for some is with the psychology of taking a loss after seeing a large profit turn against you. Ultimately, I feel that it comes down to having faith in your strategy and recognising that losses are a part of the business and allowing for the probabilities to play out. Plus, as you point out, the additional complexity increases the rule set and can add another point of potential code failure or second guessing by the trader when manually placing the order.

    Thanks for the article.

    Ryan

    daxgaptrading.wordpress.com

    • Kevin says:

      Thanks for the comments. I agree. I’d love to hear from anyone who has success with breakeven stops – maybe I am doing it wrong.

      Thanks again, Ryan. I will check out your site.

      Kevin

  • AB88 says:

    I find breakeven stops work well in range trading/reversion strategies, initially set as a hard stop away from entry (predefined loss incurred if triggered), and then moved to a breakeven stop once the position moves into the money by a predefined amount (an amount that probabilities suggest the entry price won’t be revisited imminently). The logic being that if the anticipated range/reversion dynamic evolves/breaks down, for whatever reason, then the stop defines the cost to find out if the strategy is still consistently profitable. It can be a helpful hint to review, recalibrate or retire the strategy.

    • Kevin says:

      Thanks for the comment! I will have to look at b/e stops in some of my mean reversion strategies.

      Thanks!

  • Marco says:

    You are right Kevin, we all should focus more on this topic. I agree with you all.
    I think the secret is in keeping a consistent approach, if you use breakeven stops, use them always. If you don’t, just avoid them. A mixed approach can lead to bad luck, and you end doing all the times the wrong thing.

    https://nightlypatterns.wordpress.com

  • ari says:

    am i mistaken? but using the built in breakeven stop that comes with @stops and targets strategy, will work. Just set your floor amount, to any amount of profit, then proceed from there. You can optimize the floor as well. So what’s the point of inserting this code?

    • ari says:

      btw, forgot to add, just insert the @stops and targets strategy to strategy analysis, and status to on, modify inputs, and make sure your base strategy is on as well.

    • Kevin Davey says:

      Thanks for the comment. I explain why I do not use breakeven stop keyword in the article (the modified code can do things breakeven keyword cannot do):

      “This code can easily be modified to move from a breakeven stop to a stop with a small profit. It could also be modified so that the threshold is based on recent volatility, instead of a fixed dollar amount for the whole test period.”

  • Albert Hussman says:

    I downloaded your Breakeven Stops in TradeStation but get an error message:
    “Position Information Function not allowed in a study”. I did this as an indicator and Strategy. What is wrong?

    • Kevin Davey says:

      Sorry you are having trouble! The code in the article must be placed in a strategy. If you put it in an indicator, paint bar, show me, etc. you will get that error message. Make sure it is in a strategy.

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