Have you ever moved the stop-loss to the breakeven point in trading?
Do you know if it’s even a good idea?
Do you know if it increases the win rate, makes more money, or actually loses money?
Well, I tested the breakeven stop-loss 100 times in this video to find the truth.
A while back, I used to move the stop-loss to the breakeven point on almost every trade.
Basically, when I took a long trade and set the stop-loss below the pullback, I would wait for the price to move in the direction of the entry.
If the 1-to-1 reward-to-risk ratio was reached, I would move the stop-loss above the entry point.
In other words, I would move it to the breakeven point.
This way, even if the price came back down, I would not lose money.
If the price moved further in the direction of the entry, I would book my profit at a bigger reward-to-risk ratio.
Overall, I liked this trading style.
However, do you know if this is even a good idea according to data?
Well, let me show you the win rate and other data by testing it 100 times.
Here’s how I did the test.
Since we already have a testing video with MACD, on the Bitcoin USD 30-minute timeframe, I used that testing data as a baseline.
In other words, we will apply the breakeven stop-loss method to this data and see if the profit and win rate go up or down.
In the MACD Bitcoin testing video, I only took trades in the direction of the trend.
I used a 200 EMA to find the trend direction.
If the price was above it, it was an uptrend.
If the price was below it, it was a downtrend.
I took a long trade when the MACD line crossed above the signal line, and this crossover happened below the MACD’s zero line.
I set the stop-loss below the pullback and used a 1.5-to-1 reward-to-risk ratio profit target.
In a short setup, I took trades when the MACD line crossed below the signal line, and that crossover happened above the MACD’s zero line.
I set the stop-loss above the pullback.
This is what that previous testing data looked like.
The win rate was around 62%, and the profit was 55%.
This is very good.
It’s one of the best trading strategies I have tested 100 times on the Trading Rush channel.
But to test the breakeven stop-loss method, we just have to make a simple change.
I took the exact same trades, but when the price reached the 1-to-1 reward-to-risk ratio, I moved the stop-loss to breakeven.
So, after taking 100 trades with the breakeven stop-loss method, this is what the data looks like.
Out of 100 trades, the breakeven stop-loss was hit around 16% of the time.
Eleven trades that made a profit in the previous test didn’t make money this time because the breakeven stop-loss was hit.
On the other hand, five trades that lost money previously didn’t lose money this time because they were saved by the breakeven stop-loss.
Here’s the thing.
In this breakeven test, I didn’t count the breakeven trades as a profit or a loss.
Well, because exiting the trade at breakeven is pretty much the same as if the trade didn’t happen.
If you are thinking these trades still had broker charges and other fees, well, yes.
But when I used to move the stop-loss to breakeven, I used to include the broker charges as well in the breakeven point.
So, most of the time, my breakeven exit didn’t make any loss even after the broker fees.
Furthermore, sometimes, I even used to aim for a tiny profit just to count that trade as a profit.
Broker charges and a tiny profit target above the breakeven point did not push the breakeven point too far.
When I took another 100 trades, but made the breakeven stoploss collect a tiny profit, the number of winning trades went way up.
For example, the normal win rate without the breakeven method was around 62%.
If we move to breakeven, then the win rate still stays around the same.
It was around 61% in this case.
But if we make the breakeven stop-loss collect a tiny profit to count that trade as profitable, then the win rate jumps to a high of 67%.
That’s good and all… But does it even matter?
I mean, it’s just an increase in the win rate.
Does it actually make more money?
Well, the profit without the breakeven method was around 55%.
The breakeven method made 43.5% profit.
And the breakeven method that collected a tiny profit made 43 point five two % profit in total.
So, setting a breakeven stop-loss actually made less money.
Does that mean the breakeven method is bad?
Well, not exactly.
Let me tell you why I stopped using it and what I do now.
You see, this MACD strategy test was in a good, trending market.
And the strategy was a trend-trading strategy.
So, most of the trades had a higher probability of making money.
But if you use the breakeven method when you already have a higher probability of making money, you are just increasing the probability of exiting early.
You end up exiting when the price reverses a little bit before moving further in the trend’s direction.
In other words, moving the stop-loss to the breakeven point is kind of bad in a trending market.
But the breakeven stop-loss saved losses when the trend was slow or not good.
In other words, when you are not sure if the trend is good, if it looks slow, or if the price shows signs of reversing, a breakeven stop-loss can definitely save you from a loss.
For example, nowadays, I use a breakeven stop-loss when I see a strong sign of the price moving in the opposite direction.
If I take a long trade and the price moves nicely in the direction of the entry, but then a strong red candle appears showing higher selling pressure, I have a decision to make.
I don’t know if this selling pressure is strong enough to move the price completely down.
I don’t want to ignore the higher selling pressure, but I also don’t want to exit in fear and end up missing more profit.
So, I just move the stop-loss to breakeven.
Another example is when there is weak resistance nearby, but I’m not completely sure if it can reverse the price.
So, I take a long trade, but when the price goes near the resistance and I see stronger selling pressure, I move the stop-loss to breakeven.
This way, I don’t care about what happens next; I have reduced my risk to zero.
Basically, nowadays, I don’t move the stop-loss to breakeven on every trade.
I just move it on setups that I no longer like after taking the trade.
That’s all! Thanks for watching!