A1 Trading Company

June 24, 2021

What Makes Breakeven Trades Good or Bad?

Bart Kurek

A trade closed at breakeven is one that is neither a winner nor a loser. It closes at a particular price where profit and losses both equal to zero, or close enough.

The beauty of breakeven trades is that, although you may not increase your account with them, they enable you to protect your capital, which is crucial when being a part of this game.

Let's discuss the two types of regular breakeven trades and the psychology behind them.

Scenario 1

  • The market initially moves in your favour
  • The market begins to turn around
  • You mentally exit at breakeven, or your adjusted stop loss at breakeven gets triggered
  • The market reverses again, eventually hitting your profit target

The above scenario usually unfolds through wild swings of price action and unpredictable market events, and it's a smart move to protect your capital and exit at breakeven.

However, traders often end up with breakeven trades for the wrong reasons, usually encounter fear and see a positive trade turn negative.

Scenario 2

  • The market goes against you
  • The market begins to turn around, and you approach breakeven
  • You mentally exit once you see some profit
  • The market reverses again, eventually hitting your stop loss

You've been in a trade that hasn't been going well, and you are finally starting to see price creep back towards your entry level. Although it's never really a good idea to let losing trades run, doing so can work to our advantage.

As the saying says, "cut losses short, let profits run", and of course no one wants to close out on a trade in a loss, but sometimes it's the better thing to do; it gives you more time and energy to focus on other potential setups, instead of dreading the losing trade you're in right now.

Hope can lead a trader to hold a losing trade which they should have exited a long time ago. Closing a trade at breakeven is the best that you can do, and that doing so can save you from taking on more significant losses than necessary.

But obviously, no one knows exactly what will happen, so it's not like we can "choose" which scenario we want to make a reality. It's way easier said than done, but the message I'm trying to portray here, is that it's okay to close out early on a trade that is not moving in your favour.

It's essential to keep track of your breakeven trades; they reveal a lot about how you keep yourself together in times of extreme stress.

Next time you close at breakeven, take a step back and ask yourself what that zero in the P/L column means. Did you execute your trade according to plan, and the market just didn’t go your way? Or were you overcome by fear, greed, or hope?

Charge it towards your experience, make the adjustment to your forex trading plans, and move forward.

A1 Edgefinder

All-In-One Fundamental Dashboard!
Simplify your fundamental analysis with our all-in-one fundamental dashboard! 
Discount code: READER

Learn more

My Crazy Trade On Gold: Up $8000

Hey Traders! This week has been wild for Gold! Thanks to insights from the EdgeFinder, I've been in a trade on XAUUSD since May 3rd. Initially, I jumped in due to weak jobs and PMI data, sticky inflation, and solid support/market structure. Here’s a quick look at my gold trade: Entry Recap: On May 13th, […]

Read More
Is Gold the Buy of 2024?

Rates move lower after the BoE announced their latest monetary policy report to keep rates unchanged at 5.25%. Unemployment came in higher this morning with the 30-year bond auction coming up Thursday afternoon. In the midst of a slow news week in the US, gold is sitting at a very favorable position according to the […]

Read More
Yields Fall Ahead of Earnings

More earnings reports come out this week is causing an inflow of buyers in the equities market while yields begin the week on a decline. Last week's Fed meeting showed up as "less hawkish" than investors expected causing risk appetite to increase at the start of the summer months. EdgeFinder Analysis As we come off […]

Read More
DISCLAIMER: All comments made by TraderNick’s Forex Group, LLC are for educational and informational purposes only. All comments should not be construed as investment advice regarding the purchase or sale of any securities or financial instrument of any kind. Please consult with your financial adviser before making an investment decision regarding any securities or financial instruments mentioned by TraderNick’s Forex Group, LLC. TraderNick’s Forex Group, LLC assumes no responsibility for your trading and investment results. All information on any of the platforms utilized by TraderNick’s Forex Group, LLC was obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. TraderNick’s Forex Group, LLC, its employees, representatives, and affiliated individuals may have a position or effect transactions in the securities and financial instruments herein and or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies. Trading of any type involves very high risk and may not be suitable for all investors. TraderNick’s Forex Group, LLC, its subsidiaries and all affiliated individuals assume no responsibility for your trading and investment result. Read our full disclaimer here
Home
Edgefinder
Signals
There is a significant degree of risk involved in trading securities. With respect to foreign exchange trading, there is considerable risk exposure, including but not limited to, leverage, creditworthiness, limited regulatory protection and market volatility that may substantially affect the price, or liquidity of a currency or currency pair. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts lose money when trading in CFDs. You should consider whether you can afford to take the high risk of losing your money.
homesmartphonelaptop-phonemenucross-circle linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram