Why The “Breakeven” Trade is a Winning Strategy
Most traders approach each trade with one of two expectations – win or lose.
But what if I told you the key to a winning strategy is to use a “break-even” trade?
A break-even trade is simply one where you didn’t win or lose, but eliminated the possibility of a loss – by moving your (initial) stop to breakeven.
Getting your stop to break-even eliminates the risk of a loss.
Breakeven Trades Stack the Odds in Your favor
So instead of a trade only having 2 potential outcomes – win or lose, you have introduced a third outcome. And now, two out of three possibilities guarantee you won’t lose any money.
Can you see how this simple technique can help stack the odds in your favor?
Employing the breakeven trade in your strategy means “less percent of your trades are losers”.
This is a similar concept to the fact that there aren’t just 2 types of participants in the market, Buyers and Sellers – but a third type of participant – Shorts. Realizing that Short sellers introduce an added dynamic into the market helps you understand that things are not just always binary.
So back to the idea of a break-even trade…
One of the best risk-management techniques professional traders use is the break-even trade, which provides an “edge” and reduces risk.
“Getting to Breakeven” is a powerful but often overlooked strategy that can totally change everything for a struggling trader and it’s simple but seldom discussed.
Using a break-even strategy increases your odds over a series of trades.
How many times has this happened to you? You get into a trade and the price starts moving in your favor right off the bat. The market is moving in the direction of your trade and everything seems to be working out just as you’d hoped – you’re in the money. Shortly thereafter the price reverses and you begin to watch your profits evaporate. You’re thinking it’s just a normal counter-trend move but pretty soon all the profits you didn’t “lock-in” are gone and you are staring at the screen as the position turns negative.
Your profit has turned into a loss and now you are wondering why you didn’t just sell when you had the opportunity.
We’ve all experienced this.
There’s no worse feeling than having a solid profit in a trade – then slowly watching your profits melt away as a trade gets away from you, only to have to throw in the towel and sell at a loss.
This is why you need a selling strategy. One that guarantees a decent profit will never turn into a loss.
Of course it goes without saying that you have to use a stop-loss on every trade, so there’s always going to be an “initial stop”. And that stop is going to get hit sometimes – it’s just the nature of trading.
The key is “ratcheting” that stop at just the right time – to get to breakeven.
In the Futures market, if you’re just trading 1 contract – in order to get to breakeven – you’d have to have enough movement in the direction of your trade to be able to move the stop to your Entry. You also need to make sure you leave the price enough wiggle room so that the “ratcheted” stop doesn’t get hit almost immediately.
This is why trading 2 Contracts (minimum) makes the most sense.
It allows you to take profits at an “east to hit” Target and move your stop up to “virtual breakeven” (Not your Entry).
Virtual Breakeven is the exact level at which you can’t lose money on the trade.
Here’s an example:
Say you go long with 2 Contracts and set your first target at 4 points. The market rallies up and you sell and take partial profits at that target. Now, you can move your initial stop up to the level that guarantees a maximum -4 point loss if the market reverses back down.
Most people think of a breakeven trade as “getting the stop to your Entry”. The big problem with that is it doesn’t allow enough “wiggle room” for the price to move without hitting your stop repeatedly. In other words if you just move your stop to the entry – you are going to get stopped out over and over.
When managing your stop-loss it’s important to give price enough leeway for normal fluctuation – without getting stopped out. Taking partial profits and sliding the stop to “virtual breakeven” provides that extra room for the price to fluctuate and not get knocked-out of a trade prematurely – only to watch the price resume its trend in the same direction.
Here’s the most important point:
Once you get your stop to virtual breakeven – there’s unlimited opportunity for more gains, without any risk of a loss.
The Power Emini Momentum System “automatically” employs this “Breakeven Strategy”.
When a Trade Alert gets filled, it instantly provides 2 Targets and the initial stop. When the 1st Target gets hit, it “automatically ratchets” the Trailing Stop to the breakeven level. At that point there’s no risk of a loss on that trade.
We’ve found that using a mechanical approach to trading works best. It removes emotions from the equation and eliminates the difficulty of making decisions on the fly.
Our system is programmed to use a trailing stop-loss to make the selling decisions for us. That way there’s no guesswork involved, and it lets the market price behavior tell us exactly when to sell.
Getting the stop to Breakeven Eliminates All the Stress – and Means that We Can’t Lose Money on the Trade. That’s a Good Feeling.
The Power Emini Momentum System computes A Trailing Stop-Loss Order so We Always Know EXACTLY When to get to breakeven and where to take profits. Better yet, the stops are based on the current ATR’s and ranges in the market at the time – so it’s “dynamic” and will adapt to any market environment.
And as I mentioned, one of the key aspects of the system is that it moves the initial stop to breakeven as soon as the 1st Target gets hit. So all we need is just enough follow-through on a trade to get us to the 1st (relatively) easy to hit target – then we’ve eliminated the possibility of a loss.
I’m sure you’d agree that using stops based on the current ATR’s in the market makes sense, so I probably don’t need to go into detail about that here.
Our Futures Trading software employs a complex set of algorithms to calculate EXACTLY where the stop-loss should be at all times. Determining a proper stop-loss level is no easy task and we’ve programed multiple sets of logic to determine the optimal stop-loss level at any given point in time based on the market behavior and key technical levels.
The Momentum System’s Dynamic Trailing Stop and the precise ratcheting of that stop – getting a trade to breakeven at just the right time – is what gives the system that extra edge.
Here’s the best part. Using the Delta Neutral stop move / Breakeven strategy, you will increase your odds over a longer series of trades. This little scaling trick gives you an extra edge in the market mathematically and it also reduces stress from day to day. That’s because every time the price gets to your “easy to hit first target” and you take profits, you’re in a no-lose position.
You Won’t Find An Easier To Use Trading System Anywhere
The Power Emini Momentum System is designed to get your trades to breakeven quickly
Entry Price – Trailing Stops – Dynamic Targets
PowerEmini Automated Alert Software For Futures Traders