Hello dear friends!
I am glad to see on this page both regular readers of the blog, and those who quite by accident "wandered" to this page, walking through the vast expanses of the Internet.
Today in the article I will try to answer the question what is breakeven in principle and breakeven on Forex in particular. It is very important to understand how this technique works, because it is used by almost all traders, both beginners and professionals.
The topic for this article was not chosen by chance. The ideas were a letter that I received from our regular reader. Here is his text:
Hello Vadim)
I would like to thank you for providing me with an article on trend lines in time. I have a request for clarification on stop loss. How to put a stop loss at breakeven. What parameters must be met in order for the stop loss to be at zero? It's hard for me to figure this out on my own. Not having the skills and out of fear, in order not to be at a loss, every time I started to pull up the stop loss to the price ... It turns out nonsense ... Help, please. (Thank you and hello Katya).
I want to say thank you for the great question and idea for this article.
Before we move on, I will provide some links to articles published earlier. If their names do not tell you anything, then I strongly recommend that you familiarize yourself with them, since I will operate with the concepts that are described in detail in them.
breakeven— this is the level at which the opening and closing prices of the transaction coincide (excluding commissions). As a result of such a transaction, the trader does not lose anything, but does not earn anything either. And it doesn't matter how the trade was closed by a market order or by stop loss/take profit.
Often in the jargon of traders you can find such expressions as: “Got to zero”, “knocked out according to the BU”, “zero level”, etc. All these expressions mean only one thing - breakeven. And as if they say that this trader did not lose anything, but did not earn anything either.
To make it clearer, I will give a simple example. We bought the British pound at 1.5500 and set our stop loss at 1.5400. After a while, the rate rose, and the price reached 1.5600. Next, we will move our stop loss to 1.5504 (trade open level plus spread). Now, if suddenly, under the influence of any factors, the price reverses and reaches our stop loss, then we will remain in our interests.
It's great, isn't it? Here it is the secret of break-even trading in the Forex market! But is everything so clear and beautiful in practice?
Unfortunately, such a wonderful tool has a downside. Yes, on the one hand, we limit our losses, thereby keeping the deposit, but on the other hand, we do not earn. Then the question arises: why trade?
To learn how to properly manage a position using such a wonderful technique, you need to understand what drives traders when they move their stop loss to breakeven level?
Reasons for the transfer to breakeven.
If you rely on the “Pareto law”, then we can assume that 80% of traders use this position maintenance technique to limit their losses. And only 20% in order to protect honestly earned profits.
Why is this happening?
In order to answer this question, it is necessary to touch upon the topic of trading psychology. Any trader is driven by two main emotions: greed and fear. So it is fear that “forces” the trader to move the stop to zero.
Why does fear arise?
Fear can arise only in two cases:
- If a trader is a beginner and he does not have trading experience and vision of the market, or he does not have his own trading system that he trusts (and it doesn’t matter if it is based on indicators, technical analysis, or something else).
- Or the trader does not follow the rules of money management and takes on increased risks.
On the first point, I think that everything is very clear. A newcomer came, opened a deal in some direction, the price passed 10-15 points, and he immediately moves stop loss to breakeven. It is understandable, he has no idea what volatility, market noise, and in general, why did he open this deal ?
When a trader has his own proven trading strategy, the rules of which are strictly observed, it would never occur to him to move the stop loss ahead of time.
But there is also a second group of traders who really, in the presence of a good profitable trading strategy, experience fear. Why is this happening? Because the trader takes on increased trading risks.
Let's imagine a simple situation. A trader, having a small deposit of $500, opens a deal with a volume of 0.1 lots (~10,000 units of the base currency, depending on the currency pair). And the risk per trade is 100 pips ($100). Do you think he will be scared? Believe me, he will be very, incredibly scared! Because with such trading, only 3-5 such transactions will lead to a complete deposit problem. Naturally, he will have no choice but at the first opportunity. move a protective order to breakeven.
And the way out is very simple: reduce the volume several times or skip this deal and wait for another one with more acceptable conditions.
Hence the conclusion: if you experience fear during an open trade, then either you doubt your trading (lack of experience or trading system), or you are taking prohibitively high risks and you need to reduce the volume.
Please read again and remember well the words I wrote above.
This is what happened to those 80% of traders who use breakeven to cut their financial losses. Those 20% of traders who use it to save profits, we will not consider, they are doing everything right. Another conclusion:
Forex breakeven is a tool designed to protect honestly earned profits.
If you are not using this tool for its intended purpose, then congratulations, you have gaps in the psychology of stock trading (in particular, with fear) and you need to carefully re-read the two points that I wrote about above.
Well, here we come to the last "stop" in our today's article.
When to move the stop to the breakeven level?
If you are expecting a definite answer from me to this question, then I have to disappoint you. Unfortunately, I don't have it. You can find the answer to it either in the rules of your own trading system (if any), or in your own experience.
With the rules of the trading system, everything is simple. If it is said that after the price has passed a certain number of points in the "+" after entering the position, then it is necessary to transfer to breakeven. Everything is simple.
Experience is much more difficult. There is no strict mechanical algorithm here, and each transaction is individual. I will show you with a concrete example how I would act.
Currency pair NZDUSD. I buy on the breakdown of the signal bar (the entry level in the figure is indicated by the green line), the stop loss is placed behind the low (red line).
The orange area highlights the current resistance zone for the price. This is a traded area and it is not a fact that the price will go higher. Just don't ask why.
Attention to the question: after the appearance of which bar with which number I would move the stop loss to the breakeven level and move it at all?
Answer: at the opening of bar number 8. Let me explain why.
From bar No. 1−4 inclusive, this is an impulse movement on which we earn. Bars numbered 5-6 are a correction. We do not know when it will end and how deep it will be. Therefore, it is wrong to move the stop in the BU after bar No. 6 closes. The price can easily drop to the opening level and hit the stop loss. The result will be "0", and we need to earn.
The current bar may turn out to be a false breakout of the inside bar with a rewrite of the previous high and entry into the traded area. Therefore, I would close part of the position, and for the rest of the position, move the stop under the low of bar No. 8 (blue line). But only after the closing of the current bar! Everything I do in the market, I do it only after the bar is closed. It is very important. If the current bar shows signs of growth, then I will not move the stop loss, but leave it there (at the level of opening a deal).
I am sure that many of you would move your stop loss below the low of candle number 6. After all, you were taught this way in DC and in textbooks on technical analysis. This is definitely not possible! Because the market makers know that this is a stop formation and there is money. And money is volume and liquidity, so there is a high probability that the price will return there.
I wrote a train of thought for only one specific market situation. Naturally, in other cases, everything can be completely different.
Experience comes with practice. Over time, you will be able to competently and profitably use breakeven in your trading. The main thing is to understand that Forex breakeven is necessary, first of all, in order to help you not to lose the money you have already earned.
This is where I end. Thank you for your attention. If you have any questions, then ask them in the comments. Also, if the article was useful to you, share it with your friends on social networks by clicking on the appropriate button.
June 18, 2015 at 5:30 pm 12706 0One of the most common and costly mistakes traders make is moving their stop loss to breakeven too quickly. From a psychological point of view, this is a very attractive prospect: to move the stop loss to breakeven and enjoy trading without risks. But behind this ostensible safety, there is a tendency to fall out of a potentially profitable trade too early. Stop loss can only be moved after a certain period of time has elapsed or after the trade has moved in the trader's favor and promises large profits, against the backdrop of reduced risk. In other cases, it is better not to move the stop loss.
When to move your stop loss, and whether or not you should do it at all, depends on your trading style.
Should you move your stop loss at all?
In some situations, it is better not to move the stop loss at all. After all, if you test the profitability of a good trading strategy with well-defined rules, moving stop losses will rarely make a big difference to overall profitability. If you consider stop loss movement not as a science, but as an art, you must be a very good trader in order to achieve a decent result. Beginners most often do not move stop losses, unless there is very little left before the target profit.
If you opened a trade and the market immediately moved in your favor, this is a great sign. Remember that when you move your stop loss to breakeven, you are limiting profit and risk accordingly. In fact, moving the stop loss is the same as taking profits. Well, why stop trading if you believe in the profitability of your trade?
Statistical validity of trading positions
If you consider all the positions opened within the strategy, you will notice that in most cases the price returns to the original position, even after a significant time period. Even when a technical development has taken place, and it seems that the price will not return to its original position, a sharp jump up or down will most likely return it to its initial position and blow out your recently breakeven stop loss.
Stop Loss Adjustment Methods
1. Certain period
The point of this method is to give the trade enough time to show its full potential. If after the specified period of time the transaction showed losses, just exit it. If profit, move the stop loss to the breakeven zone. The advantage of this method is that it allows you to exit losing trades in time and not exit profitable trades ahead of time.
2. Floating profit is equal to a certain amount
You can apply the principle of "don't let the winner turn into a loser" by moving the stop loss to breakeven as soon as it goes beyond the boundaries of the initial position. It is best to wait for the profit to be 3 times the size of the stop loss before applying this method.
3. Trailing stop
It is necessary to ensure that the profit reaches at least 3 times the size of the stop loss, and the size of the stop must be tied to volatility.
4. Fixed amount of profit points
Here the stop loss is moved to breakeven after some fixed amount of floating profit has been reached. The price should be closer to the take profit than to the entry point.
Do not rush to move the stop loss, but do not forget about this possibility.
All the best!
And Zen channel , STRICTLY MANDATORY subscribe and receive articles that are not on the blog, and indeed, the best news will come in a personal VK
Subscribe and bookmark the site! You will find a lot of interesting things about earnings and finances! 15 people working on the blog
[hide]
We will also consider the positive and negative features of its use, examine advisers and scripts that transfer a position to breakeven. So what is it?
Breakeven is an operation that combines the opening price of a transaction and the stop loss level without taking into account the commission. Traders often say the following words: “Today I went into Used”, which means that on this day his trades went to breakeven. In this case, the trader did not earn anything. That is, at what price the currency was bought, it can be sold at this price, or vice versa, and the result is zero, this is the essence of breakeven.
Let's look at how it is used for open positions.
Let's say that on some pair we opened a buy trade and set a stop loss order to limit losses. If the rate goes in the direction of our forecast, then conditions will be created for moving an order to stop losses, which will acquire the status of a small take profit, and then we can set it to the level of the opening price of the transaction plus the spread size. Now an open buy trade has a breakeven level and a floating profit level.
The same is true for short positions. When we sell at a certain price, while the rate moves in the direction of our forecast and a floating profit area appears, we can move the order to stop losses a few pips below the price at which they were sold. So we will transfer the position to the breakeven status. If the situation develops unfavorably and the market goes up, then at least we will remain on our own.
What happens? When we set an order at the breakeven level, it is a certain kind of insurance against various unforeseen movements in the price of an asset.
This helps to reduce the psychological burden, which means that it no longer matters to us where the rate will move, since we have set the position at the breakeven level. This tactic is most often used by professional traders and those who are afraid of losing even a small profit.
The operation of moving to breakeven has its drawbacks. Often, almost every pair that includes a dollar can be observed quite or amplitude, in other words. If you do not take this fact into account, and at the first opportunity, when the price goes a little in our favor, transfer the stop loss to breakeven, then there is a possibility of falling for the disruption of the order by a sharp price jump.
That is why this tactic is suitable for cases when there is a good trend in the market, which drags the price with it. In this state of affairs, volatility will not be able to reach the level at which the stop loss is located.
I would like to note that low volatility in the presence of a flat or otherwise will not save us from failure when using this tactic. This is because the market in this case is almost at the same level all the time, which will inevitably lead to a breakdown of the stop loss, which is located at breakeven.
We recommend that you take into account the distance from this level to the current price position when placing breakeven on Forex. It should be enough to maneuver. Otherwise, trades can often get hit by breakeven stop losses, and you will miss out on your potential profit on orders.
Let's move on to automatic methods of transferring concluded deals to breakeven using Expert Advisors and scripts.
Watch
Download
One of the Expert Advisors that will help you automatically move positions to breakeven. To automatically transfer trades to the breakeven level, there is an Expert Advisor, which, in fact, is a convenient utility.
It's called ShowMeBe. This robot will not only help you move one of the orders to the breakeven area, but also order grids opened manually or with the help of another adviser. Such a robot may be suitable for or.
And now about how to install the utility in the trading terminal and on the price chart.
Installing ShowMeBe is a simple procedure that we perform when we turn on any Expert Advisor in the terminal. After the installation process is completed, you need to run the . For the adviser to work correctly, you need to check the terminal settings and make sure that they allow you to use the robot in trading.
Expert Advisor for transferring to breakeven, working in invisible mode
The invisible breakeven EA is called STEALS, you can download it by clicking on the button just above.
Have you ever thought about the offer of any developer of MetaTrader 4 advisors to purchase a product, which works in a mode invisible to the broker? You say that this can not be? And here you are wrong!
If the levels are not set as a stop loss, then, according to the general rules, the broker will not see exactly where the orders were placed. Labels play the role of levels.
Several years have passed since the appearance of this Expert Advisor. This robot has done a great job. Its functionality consists of:
- Placement of virtual take profit,
- Placing a virtual stop loss,
- Setting stop loss to breakeven.
When orders are found on the chart, the EA puts labels on the closing prices for take profit, stop loss and breakeven. In this case, the adviser can work on various magic numbers.
When setting the magic number to -1, the EA will service all orders on the chart. If you set this parameter to 0, then the EA will only work with manual orders.
Advisor options:
- TakeProfit = 0. If zero, it is not used.
- StopLoss = 0. If zero, it is not used.
- Bezubitok = 300. Breakeven level. Zero is not used.
- BezMinDis = 50. Minimum profit taking when we move to breakeven.
- Magic = -1. At -1, it works on all magics.
- Slip = 20. Slippage.
- comment = 2. Number of message lines. It is recommended to set to 0.
Breakeven script
Script to break even your open orders. The principle of the script for transferring orders to breakeven is very simple. After activation, the code proceeds to a sequential inspection of all open orders and, if possible, transfers their stop loss to the breakeven level, for five points of profit.
If you need the script to move the stop loss to the level of the open price, then you should slightly change its code. To do this, for example, hover the mouse over the script and right-click on it to bring up the context menu. Here we select "change". After that, the script will be opened in the meta editor.
We find the parameter that determines the breakeven level and define it at our discretion. Next, click "compile". Now everything is ready.
How to apply this script:
- Select the desired software module with the mouse. By pressing the left mouse button, we “transfer” it to the asset chart.
- When a new tick arrives, the script starts running. He will ask you "to breakeven all orders for 5 points?".
- You need to confirm the parameter change.
- The script itself will change the stop loss parameter of all orders that have been opened.
How useful is the post?
Click on a star to rate!
Submit an estimate
Average rating / 5. Number of ratings:
There are no ratings yet. Rate first.
We're sorry you gave a low rating!
Let us get better!
Tell us how can we get better?
Post a review
I would like to talk about such a thing as transferring a transaction to breakeven.
Everyone knows about breakeven in Forex, but questions about transferring an order to breakeven remain.
And the main question that haunts neither beginners nor experienced traders:
Breakeven - is it good or bad?
Let's figure it out together.
There is an opinion in the trading community that after opening a position, you need to “evaporate” it to a stop or profit and not engage in all sorts of nonsense like breakeven.
In my opinion, the idea is rather controversial. Judge for yourself. On the one hand, of course, it's cool to get the intended profit, but on the other hand, it's extremely lousy when a position that gave a fat plus closes in a minus by a stack.
Imagine a situation that happens to every trader. The price after opening a position has passed 50% of the way to your intended profit, and then BAM ... It turns around and takes down your stop loss, fixing the loss. 🙁
This is where the question comes up for backfilling: was it really necessary to hatch a profit?
After the stop, you curse everything in the world and solemnly promise yourself the next time you transfer the order to breakeven as soon as possible.
When transferring a transaction to breakeven, we are driven by fear! and once again experience the bitterness of loss. The instinct of self-preservation turns on and the next time, at the first symptoms of fear, we tighten the position by +1, +5 or even +50 points. The price successfully knocks out our order and goes to the intended target, but without us…
Vicious circle, you ask?
The thing is that our reaction to the result depends on where the price went after the decision. If we fixed part of the profit (or completely closed the position) without waiting for the profit, and the price after that safely descended to it, we say to ourselves - "Here's an asshole, we should have held the position to the end ...". And if, after a premature profit-taking or an order triggered at breakeven, the price turns around and goes in the other direction, we merrily dance like the girl in the Exhibit video, shouting: “Who is great? I'm fine fellow!" 🙂
So I repeat, to the question "Break-even on Forex - friend or foe?" there is no clear answer. That's why,
- If you do not use breakeven in your trading, you must be sure that the price in 95 cases out of 100 reaches your goals. And only statistics can show this! And then ... not always 🙁 . And don't freak out when a profitable trade turns into a losing one.
- If you use a trading tactic called breakeven, then you should not bother about lost profits when the price continued to move in your direction after closing the transaction. There will always be a second chance to re-enter the market!
Personally, I lean towards the second option and try to protect the already existing profit, while setting myself up not to shed crocodile tears 🙂 about unearned money. In any case, all actions to move the stop to breakeven or squeeze profits must be competent and conscious. They should be based on calculations, and not on emotions in the form of fear.
2 options for transferring a transaction to breakeven
As one of my comrades used to say, with all the variety of choices, we have no alternative. And there are only two options for transferring orders to breakeven:
- hard variant is when you roll over a stop loss after the price passes a certain value in points. This value can be either your stop or half of the average daily volatility of the traded instrument. As an example (and as a working option), let's say your standard stop loss is 50 pips, and the average daily volatility for the instrument is 100 pips. If the price moved towards the opening of the transaction by 50 points, you transfer the closing order to plus 2-3 points (including the spread). All! You are in the house 🙂 . A good tactic in general - the main thing is simple, but there is a nuance - this is the size of your stop. If your standard stop loss is small (10-20 points), then there is a high probability that due to market noise your stop moved to breakeven after the price passes these 10-20 points will work too early.
- soft option, which I personally like better. The closing stop loss order is moved to plus 2-3 points (taking into account the spread) when the first impulse has passed in your direction, then a correction has passed, and after it the price has made a high/relow high or low on that . This option gives more chances that your position will not be taken out at breakeven ahead of time. But, there is a minus in this tactic - there is always a threat that the correction can develop into a complete reversal around, and you simply will not have time to pull the stop to breakeven.
2 alternative breakeven options
What other options are there for trading tactics to protect profits?
- trailing stop. I talked about all its pros and cons in, so I will not repeat myself.
- Safe - this is when you close the profit on half of the position, and transfer the stop loss to the rest of the position by an amount less than the closed profit. For example, you opened a position at some significant level with an initial stop of 50 points. The price moved 30 pips in your direction, and you close ½ of your position, and for the rest you tighten the stop to -20 pips from the opening price. Thus, your stop has remained 50 points and is behind a significant level, the breakdown of which will cancel the original scenario. But even if the trailed stop is triggered, you will make a profit of +10 pips.
Let's say you opened a position with a size of 1 lot, the price of a point (on the EUR/USD pair) would be $10.
The initial risk of 50 pips is -500$.
When the safe is triggered, you get:
profit 30 p. (for half of the position), equal to $150
and a loss of 20 points (for half of the position), equal to $100.
The total profit will be + $50, instead of a loss of -500 $.
Great tactic in my opinion. Its only but significant drawback is that it greatly “cuts” profit in money terms, since only half of the initial position size reaches profit and shifts not in our favor. But there is work to be done...
Which of the four profit protection options to choose, of course, everyone decides for himself. Well, in conclusion, I want to repeat the words of great traders once again:
“You need to trade in such a way that you can take money home every day. It doesn't matter if it's one dollar or $10,000. The main thing in our difficult business is NOT TO LOSE!”
What I sincerely wish for all of us!
Here are my thoughts on the breakeven. I would be glad if you, dear readers, share your thoughts on this topic.
Lord traders! Subscribed to receive announcements at the bottom of the blog - received useful information before others!
Sergey Evdokimenko was with you. I will answer all your questions in the comments.
4 comments on ““Forex breakeven – friend or foe?””
Guys. Don't count points, but dollars. The price move depends on the strength of the trend. But you know that “the trend is our friend” does not happen as often as we would like. Basically there is a “sideways” or you don’t understand what. Yes, and currencies and cross-rates move differently. One will move 10 points in an hour. another 30. "The greed of the fraer destroys"! Friends. Open a deal, take yours and leave without regretting anything. Trade is an unpredictable thing. I have, for example. the turkey says that the correction has begun. I'm closing. I'll see what happens next. The trend will either move forward or it won't. I will not say here how to determine the strength of the trend, those who have some experience in the market should know this. Depending on the strength of the trend, I conclude whether it is worth sitting out further in the hope of opening a deal after the correction, or whether I need to “make it easy for my aunt”. I never use trailing stop or profit calculations. There are many indicators that speak about the strength of the movement of any currency in the market. That's what I work for. On strong currency movements. I take mine and leave. But everyone has their own preferences in trading. different styles, etc. "Seek and find." Good luck to everyone and good luck!
In my opinion, the price does not care what profit we mean and it is moving in the direction in which it will empty more trailers. Therefore, there is no need to kill yourself about a fat plus, for someone else it was a fat minus, but you just got lucky. It was also lucky that they closed it not in the red, but the fact that the price turned around, so the story would have gutted it in real life.
Gennady, the principle “I take my own and leave” is super! You can be envied (I say this without any sarcasm!), You managed to overcome fear and greed - the two worst enemies of the trader. The question is - what to do if it didn’t reach “your own”? For yourself, you, as an experienced trader, have solved this issue, because you understand and feel the market, so you don’t have such a question! And what about newbies? How to insure?
I also agree that trends do not happen as often as we would like, mostly there are flats - flats, and you should not expect multi-profits in them! Although, again, it all depends on the timeframes, the size of the corridors and the desired profit... If the daily corridor is 300-500 points and someone trades long-term and is ready to hold the position for a couple of days or even weeks, then the profit in this corridor will be quite decent.
But about the fact that it is not necessary to count points and dollars, I fundamentally disagree! You always need to understand what your risk per trade is (in points and money) and whether this value fits into your money management rules. This also applies to profit targets. If we say, the standard stop, which we set is 50 pp, and the profit that we close is +25 pp. Is this a good deal? In my opinion, not very good... Although it closed with a plus! Profit factor in this case will be 1 to 2, i.e. in order to work off a loss of -50 pp, we need two profitable trades, and taking into account the commission and negative swapping (if this was the case, when transferring the position to the next day), then the total is more!
In order to understand what will happen to our deposit in the future, we still need to count the numbers and keep statistics in order to understand what is the average loss / profit per trade, what percentage of positive transactions, what is the profit factor and mathematical expectation, etc. etc., and if you do not own these figures, then trading resembles the principle “where the curve will take you…” But this is already a bit of a topic for another article.
Gennady, I agree with you 100% that everyone has their own tactics and trading strategies, different styles and preferences, so everyone chooses for himself HOW he is comfortable trading!
Andrey, the price really does not care where we have a profit, where we have a stop and in which direction we have an open position!
The only thing we can influence and manage in the market is our risks. And if there is an opportunity to minimize them, then it should be done.
Read other helpful articles
