In business, breaking even is cause for celebration. It means you are on your way to becoming profitable. But is it the same in Forex trading? This is what I am going over in this blog. If you are unsure about whether it is ok to exit when you breakeven, this blog might help.
What is breaking even in Forex?
In Forex, a breakeven trade is one in which you have managed to keep your investment secure but haven’t made any profit. So the trade didn’t go against you, but it also didn’t really go in your favour either.
Common scenarios that result in breakeven trades
If you are new to Forex trading, you might be wondering why anyone would exit a trade without waiting to profit when the market hasn’t done them any damage either. Here are two possible reason why they might have exited.
- The market was going against them but then it turned and hit their entry level. From fear that it might reverse once again, they decide to get out at the same level they entered to keep their capital safe.
- The market was going in their favour, but then it reversed and started going against them. They didn’t think that it would turn again so when it hit their entry level, they exited.
It is possible in both of those situations that the market might have ended up taking your desired direction.
In the first situation, it is possible that the market go further in their favoured direction and that if they had stayed they could have made a profit.
In the second situation the reversal might have been noise and it was possible that it might take the original direction again.
So is it good that they exited or not?
In most cases, saving your capital when there isn’t a strong enough trend in the market is the safe thing to do. It is not wrong to take chances every once in a while when even though on the surface the market is moving against you, you think it is bound to turn again. This should be backed by research and analysis and should not just be a whim.
However, if a trader is unsure it is because they know that either their analysis is failing them or they did not have a lot of evidence to back that belief of theirs in the first place. Under these circumstances, it is best to exit.
If you think that you have exited the trade not because you hadn’t put thought into it but because you got too anxious about the trade, then you are due for some reflection.
Record breakeven trades in a journal and include the conditions of your exit. Did your stop loss get triggered or did you exit manually? If you exited manually, why?
When you look back at it later, it will allow you to see how you react to market conditions and if you think it is hurting you in your trading, then you can take steps to counter that. You can take a look at a blog I have published before about tips for emotional management that might prove useful.
While you are still new to trading, it is best to keep risk management at the forefront, especially if you are investing a good amount in a trade. With time, experience, and self-analysis you will be able to strike a balance between knowing when to get out and when to stick to your guns.