How to and Why Breakeven
Have you noticed that there are times that your entry doesn’t hit your Take Profit (TP)? And instead of gaining pips you end up losing pips?
Or there are also times that you have TP 1 and TP 2, then although it hits TP 1 and seems to think that you are confident enough that the it will hit TP 2 but only hitting the SL. To clearly picture out this situation, let’s say that you have a BUY entry on EURUSD at 1.09000 with 2 entries:
TP 1: 1.09200
TP 2: 1.09700
Gaining or Losing?
Let’s assume that TP 1 hit, then you have a profit of 20 pips, and then waited for the TP 2 to hit. Note that your current SL is 30 pips. But what if that instead of winning the TP 2 while waiting, then there is a sudden reversal of the trend (might be due to high impact news on either Euro or USD or there was an NFP or might be some unforeseen news), it suddenly drops and hits SL. Then you end up losing 30 pips.
Then if we calculate,
20 pips on the entry for TP1
-30 pips on the entry for TP2 but hitting SL
Thus, we are losing on this entry we have with -10 pips, that is losing $1.00 of 0.01 lot size.
So can we at least have a profit or not having a loss on this scenario. So here we will be talking about BreakEven.
What is Breakeven?
The function of Breakeven (BE) is to protect your capital or balance from incurring losses after making a profit. You can place this BE by changing the existing StopLoss (SL) price to the price before your entry price. Recommended: 1 – 3 pips from the entry price.
You can refer the picture below: Left picture is for SL and the right picture it has been changed to BE. Once the price hit your BE, you won’t lose any money!
How to Apply BE?
So, back to the current scenario we have these possible situations on our 2 entries or positions:
Hitting Take Profit 1 but not TP 2
On this case, once TP 1 hit and if we are waiting for TP 2 to hit, it is safe to set Breakeven on the entries that was left. So we will move the SL from 1.08700 to 1.09010 (1 pip), so that in case the market go down it will hit close to zero or at $0.10 if 0.01 lot size.
Closely Hitting TP 1
There are some scenarios that the current price is like 15 pips positive floating profit of close to TP 1. In our opinion, if you are a scalper you may close it as profit. But if you want to wait for this to hit TP 1, then you can also set SL to Breakeven. And bonus tip, in case you open like 6 entries on this, you can close half of the entries so that you have a profit secured and set BE for the rest.
We know that Forex Trading is more on the probability. We can never know with it hits Take Profit or not, even though we are confident on our mapping or analysis. But still it is safer to apply this Breakeven strategy to secure profits.
We hope that this article helps a lot on you trading. And more profits to come!
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