Breakeven: A Good Result?

Filed under: Learn Forex Trading |

 

When a trade moves into some reasonable profits, a lot of experienced traders move their stops up to breakeven. However, there are pros and cons to this kind of strategy. Firstly, the pros. If you move your stop to breakeven and then get stopped out when price moves against your trade, you will come out of the trade at breakeven. This is good because you are protecting your trading bank and your money is in tact so that you can live to fight another day (or another trade as the case may be!). However, despite this sounding like a simple no-brainer, there are complications.

 

If you move your trade to breakeven too soon, then you are not giving the trade enough room to breath – and boy, do markets breathe! Markets do not move in a straight line. Instead, they tend to ebb and flow, stepping up and stepping down, trying at all times to catch someone out with a false move. You have to allow for these rhythms when you trade, so if you move your stop to breakeven too soon, then you are likely to get stopped out. What this does is, in effect, it eliminates your market edge (presuming that you have one). Inevitably, the trades that move in your favour end up being breakeven results, and the ones that don’t move in your favour take losses. The end result, a diminishing trading bank.

 

So if you do decide to move your stops up to breakeven, then make sure that you are allowing enough space for the market to breathe. I would recommend a trailing stop of at least one times your risk, and perhaps even two. This will depend on each particular trade setup and the volatility of the market – which is what discretionary trading is all about.

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