Moving your stop loss to breakeven is one of the most psychologically satisfying actions in trading. Once your stop is at your entry price, you cannot lose money on the trade. The position is essentially risk-free, allowing you to hold for bigger gains without the stress of potential loss.
What is a Break-Even Stop?
A break-even stop is simply moving your stop loss to your entry price once a trade moves in your favor. For a long position, if you buy at $50 with a stop at $47, moving to breakeven means adjusting your stop to $50. If the stock reverses, you exit with no loss (minus commissions).
This technique transforms a risky open position into a free trade. Your original capital is protected while you maintain full upside potential. It is the closest thing to a guaranteed outcome you can get in trading.
True Breakeven: Remember to account for commissions when setting your breakeven stop. If you paid $10 in commissions to enter, your true breakeven is entry price plus the amount needed to cover round-trip commissions.
Why Break-Even Stops Work
Eliminate Risk
Once at breakeven, the worst outcome is exiting with no loss. This frees mental capital and reduces stress. You can think clearly about whether to hold or take profits without fear clouding judgment.
Preserve Capital
Trading is about survival. Breakeven stops ensure that winning trades cannot turn into losing trades, protecting your account from the erosion that comes from turning winners into losers.
Improve Win Rate Psychology
Every breakeven exit is not a loss. This changes how you experience your trading. Instead of wins and losses, you have wins, breakevens, and losses. The middle category preserves both capital and confidence.
Enable Larger Position Holds
Knowing you cannot lose allows you to hold positions through normal volatility. Without a breakeven stop, many traders exit too early because they fear giving back gains.
When to Move to Breakeven
The 1R Rule
A common approach is to move to breakeven once you have gained an amount equal to your initial risk (1R). If you risked $100 (distance from entry to initial stop), move to breakeven once you have $100 in unrealized profit.
Example:
- Entry: $50
- Initial stop: $48 (risk of $2 per share)
- 1R target: $52 (gain of $2 per share)
- Once price reaches $52, move stop to $50
After Key Level Breakout
If you enter on a breakout and price clears the breakout level convincingly, consider moving to breakeven. The breakout level often becomes support.
After First Profit Target
Many traders move to breakeven after reaching their first profit target. If you have a two-target system, move to breakeven upon reaching target one.
Time-Based Trigger
If the trade is profitable after a set time period (such as one day for day trades or one week for swing trades), move to breakeven regardless of how much profit exists.
Position Management Rules
Rule 1: Do Not Move Too Early
Moving to breakeven too quickly is the most common mistake. If you move after a $0.50 gain, normal market noise will stop you out frequently, even on trades that would have been big winners.
Rule 2: Give Technical Room
Even at breakeven, position your stop just below a support level or swing low rather than exactly at entry. This reduces the chance of being stopped out by a minor pullback before continuation.
Rule 3: Commit Once Moved
Once you move to breakeven, do not move it back to give the trade more room. If you feel tempted to do this, you moved to breakeven too early. Accept the stop out and adjust your rule for next time.
Rule 4: Account for Volatility
Volatile stocks need more room before breakeven. Use ATR or the stock's typical daily range to determine when enough profit exists to safely move to breakeven.
Rule 5: Continue Managing After Breakeven
Breakeven is not the end of position management. Continue to trail your stop as the trade progresses. Breakeven is just the first step in a progressive stop strategy.
The Breakeven Trade-Off
Break-even stops involve a trade-off between protection and opportunity:
Pros
- Eliminates risk of loss on the trade
- Protects capital absolutely
- Reduces stress and emotional burden
- Prevents winners from becoming losers
Cons
- Can get stopped out on normal pullbacks
- May exit trades that would have been big winners
- Can reduce overall expectancy if used too aggressively
- False sense of security (does not protect against gaps)
Track Your Breakeven Stop Performance
Pro Trader Dashboard helps you analyze whether your breakeven stop rules are helping or hurting your results with detailed trade metrics.
Breakeven Stop Strategies
Strategy 1: Fixed 1R Breakeven
Simple and mechanical. Move to breakeven once profit equals initial risk. Works well for consistent position sizing.
Strategy 2: Partial Profit Plus Breakeven
Take partial profits at a target, then move stop to breakeven on the remaining position. This locks in some profit while allowing the rest to run risk-free.
- Enter with full position at $50, stop at $48
- At $54, sell half and move stop to $50
- Remaining position is risk-free with locked profit
Strategy 3: Breakeven Plus Buffer
Instead of exact breakeven, move stop to entry plus a small buffer. This accounts for commissions and gives slightly more room while still ensuring a profitable exit.
Strategy 4: Tiered Breakeven
Use different breakeven triggers for different setups. High-probability setups get faster breakeven moves. Lower-probability, higher-reward setups get more room.
Common Breakeven Stop Mistakes
1. Moving on Every Trade
Not every trade setup suits a breakeven approach. Trades with wide initial stops or those based on longer timeframes may need more room before breakeven makes sense.
2. Ignoring Market Structure
A breakeven stop placed above a swing low is more likely to hold than one placed in the middle of nowhere. Use support levels to inform your breakeven placement.
3. Getting Frustrated by Breakeven Stops
You will get stopped out at breakeven on trades that would have worked. This is the cost of protection. Do not abandon the strategy after a few frustrating exits.
4. No Follow-Through
Some traders move to breakeven and then stop managing the trade. Breakeven is step one. Continue to trail as profits grow.
Summary
Break-even stops transform open trades into risk-free positions. Move to breakeven after reaching a meaningful profit level, typically 1R or your first target. Give the trade technical room by placing the stop below support rather than exactly at entry. Accept that breakeven stops involve a trade-off between protection and opportunity.
The psychological benefits of risk-free trades are significant. Knowing you cannot lose allows clearer thinking and longer holds. Just be careful not to move too early, or you will stop yourself out of trades that would have been big winners.
Learn more: trailing stop strategies and risk-reward ratios.