There are 7 deadly trading sins every trader should avoid and moving your stop loss to break even is one of them, let me explain WHY.
Everyone wants to look like a profitable trader and want to eliminate risk as soon as possible.
The mistake is that once you do this, you not only eliminate the risk of losing more than you would like to, but you also eliminate any possibility of a potential winner.
When you are trading without a plan, you tend to trade very sloppy and lose discipline which is a main component to successful trading.
Losing is not fun and no one wants to admit that they have lost a trade when that money could have been used elsewhere.
No one wants to confront their friends or spouse that they have lost their bill or discretionary money on a single loss.
It is a very ugly reality that most traders face. This is WHY it is important to never risk any more than you are willing to lose.
So if you cannot afford to take the loss, reduce your position size to a feasible amount that you are willing to risk and may never get back.
This is one of the easiest rules to remember, but hardest to follow.
Play The Long Game
If you have a solid trading plan with a proven long-term edge, you will notice that the edge normally plays out in your favor in thelonger term.
Most of the time when you enter a trade, no matter how accurate your entry may be, the market tends to swing back to your entry point before continuing in your desired direction. This is very common and difficult to avoid as the market is unpredictable most of the time.
Even if you have been in profit and all of your technical targets have lined up, you will still have moments when the market may swing back to your entry or even past your entry and bring you in a drawdown after 75% of your target is reached.
This is commonly called a stop-hunt, which is a term traders use to describe the phenomena of price redirecting itself to hit the highly predictable stops of nervous day traders and scalpers before continuing in the direction of the overall trend.
It takes a skilled seasoned trader with lots of failure and experience to be able to position yourself to avoid these stop-hunts.
The Average True Range (ATR)
Many of you that have been following me for some time have noticed that almost all of my charts for many years have had an indicator attached to it called the Average True Range (ATR for short).
This is one of the only 2 indicators that I religiously use and I teach my Forex Academy students how to properly use it to get the greatest edge over the retail crowd in the markets.
There are specific parameters that must be modified to meet my criteria of a "safe trading zone", which is discussed in my Private Training.
When combined with a couple other indicators, this can be the single most powerful tool I have ever used in trading, and I have had my trial and errors with many of the indicators you all have learned about.
Over the course of my 11 years of trading I have back tested hundreds of indicators available to the retail crowd and learned the development of them and the psychology behind each of them.
I understand WHY they were created and have done extensive research behind the creators of these indicators.
I even have created my own in the past and continue to work on my own custom indicators that I am coding specifically for my personal advantage.
Indicators are supposed to be understood before used and most retail traders fail to understand WHY and how to use them the proper way.
Average Daily Range
Every currency pair has an average daily amount of pips that it move from open to close.
If your stop loss is within half of that average daily range, then you are setting yourself up for an automatic loss.
Literally, how often have you gotten stopped out of a trade because you tried to use the tightest stops (50 pips or lower), and the market almost "purposely" aimed for your stop?
And right before you can say WTF, it slows down and returns back into the direction of your original trading plan?
This is far too common and the only way to avoid it is to either use "time adjusted stops", which is waiting for a specific period of time before moving your stop to break even or, "calculated pip stops", which are similar to take profit targets in which you only move your stops to break even after a defined amount of pips have passed in your favor, but is also risky or my favorite, the "Average Daily Range", which is a specific amount of days range that have passed by and the reward to risk ratio of your current trade has surpassed a 3 to 1 in your favor.
Marketers, Scalpers, Day Traders
You may have seen on social media lots of traders posing as successful traders and even selling strategies or signals that have "tight stops".
It is everywhere like a plague so it can't be avoided.
They make it look easy by using small offshore brokers with high leverage and literally "flipping" accounts 100%+ in the matter of seconds to days.
RUN and DON'T LOOK BACK!
This is a gambling approach and they know that but compulsively lied to the world so much that they now believe their own misconceptions of the market and price movement.
They do not show their failure and how often their stops got hit before winning and commonly use sub-accounts or re-deposit funds until they have a winner, like a casino.
The market has an edge over these participant just like a casino has an edge over the gamblers that come in without an edge and try to flip $1000 to $10,000 overnight.
No matter how successful they may look on their post, these narcissist's have deep pockets and will continue to make their money out of the markets and go back to the arena and lose it all due to a lack of discipline and a defined trading system.
No More Blown Accounts
Can you believe it has been over 5 years since I have blown a trading account?
It is virtually impossible because I utilize a "Hard Stop".
A hard stop is used in case of a black swan event happens such as the recent 2020 presidential elections and 2020 corona virus pandemic where the markets went out of proportion. These events are rare, but do happen and must be protected from by all means so a stop is always necessary and anyone using a stop, just question WHY, the next time you see it somewhere as that person is not the market and cannot predict when another one of these events will happen.
That is all for now, follow me on social media or favorite my website and check back weekly for more free posts and helpful tools I have for the public. If you like this post and my way of thinking, then register for my Forex Academy where I teach you my exact mechanical approach that has taught me to become a consistently profitable trader in todays markets.
I have been trading the financial markets for the past decade and have failed to the point where there were no other ways to fail. I trade for myself with my own financial resources and enjoy the freedom of being my own boss managing my independent business built from the ground up. Feel free to message me anytime with questions.