Break-Even Stop
Definition
A break-even stop is moving your stop-loss order to your exact entry price once a trade has moved sufficiently in your favor — it turns a risk trade into a no-loss trade.
Example
“The stock ran 60 cents in my direction, so I moved my stop to my entry at $18.40. Now the worst case was zero, and I let the rest ride toward my $19.20 target.”
Detailed Explanation
The logic behind a break-even stop is sound: once you've proven the trade is working and shown initial profit, there's no reason to still risk a full planned loss. Moving the stop to entry converts a trade with two-sided risk into a trade where you can only make money or get stopped out flat. For many traders, this mental shift — "I can't lose on this trade now" — also reduces the emotional pressure to exit prematurely.
The timing matters enormously. Move too early — say, after the stock ticks 5 cents in your favor — and you'll get stopped out constantly on perfectly good trades that just needed a normal pullback. Move too late and you might give back all your open profit before reaching your target. A common rule: move to break-even only after the trade has moved at least 1R in your direction (i.e., moved the same distance as your initial risk). This gives the trade room while still protecting against a full reversal.
One underappreciated downside: a break-even stop placed at an obvious level (like a round number or a previous candle low) can get hit in a normal pullback before the trade resumes. If you're consistently getting stopped out at break-even only to watch the trade hit your original target, consider giving it a few extra cents of wiggle room or waiting for a slightly larger initial move before moving the stop.