Disclaimer: Title is not really relevant, just a scream for attention:)
I don’t want to open a can of worms here, but recently in one of the seminars an assertion was made that characterized traders using break even plus one (BE+1) in managing a trade as lacking trading knowledge, not knowing what they are doing, or worst they are emotionally defeated and want to come out as winners at the end, so they use BE+1.
That is a bold statement. All I have to say is “WOW.” I think this statement needs some qualification. It is right in the face of so many gurus and floor master traders that teach trade management for handsome sums of money to “successful” traders.
The intention of this note is not to attest or qualify that statement but to simply state that it is just another tool in the tool box. It all depends on where, when, and for what instrument it is used as part of the trade management. The speaker seemed to have no problem with using BE (a sure loosing proposition), but using BE+1 will definitely put a trader in the psychotic loosing class. Let’s forget about HFT traders beating the pants off small fish by trading thousands of BE+1 trades everyday.
I assume that most traders placing stops away from the entry have already assumed a certain amount of risk that they are comfortable with. Therefore, as part of the trade management moving to BE+1 is usually in situations when a trader is certain of high probability that stops will be taken out, especially for instruments with 2-4 points reversal range like Mini SP500. The reality is that BE is no better than a BE+1 and most likely will be taken out when momentum is in that direction, but now it is a looser. So, have it your way.
The bottom line; having a risk plan, managing risk, and lowering risk when conditions are changing against your trade are the name of the game in surviving trading.