When managing a trade in Forex there is a number of ways a trader can protect capital. One of those ways is using Break Even when a trade comes into a management point on the chart and in this post I will highlight what it is and a few ways in which you too can do it as well in your trading as a good option for protecting capital.
Firstly, What Is Break Even?
The term defined to mean when a trader takes the stop loss on one position and pulls it past the entry price making the trade risk free. It is referred to with what happens after a trade has been modified in this way and the market comes back on you and hits the stop loss near or on entry price, a trader then does not make any money but at the same time does not lose money and therefore break even.
Another way of looking at it is that it can be used as the first management adjustment on a trade that is in profit.
Then after that it is locking in more pips or taking some potential profits off along the way. I am getting ahead of myself with that one, but a good point on long term trend trading in general and having that long term plan as a trader. 1st management aspect being break even which is optional and then so forth locking in more pips as the market moves your way and hits potential future management points on a particular trade.
Why Use Break Even?
Easy answer this one, to protect your hard earned cash on a position. It is also a great way of defining a trade profit point where you have decided that if the market comes back on you you do not want to be in that trade. Another aspect of trend evidence trading here as well.
So overall while using break even is optional to a trader and some traders just prefer to take partials as there trade moves more into profit, it is a nice option to have for those remaining positions.
How To Set Break Even On A trade?
First option is the easy one, setting alarms for a specific price on your trade after setting up stop loss and potential long term targets. Then when alarm goes off on phone or on your trading platform adjusting it manually.
As An Example: Say you buy a pair at 1.30 and you know a good starting management point is 1.3060 on a pair, then set your alarms at 1.3060 and when that alert goes off you pull your stop loss up to 1.3003. Now if you are wondering why a few pips above, that is because I like to lock in a few pips into the profit when setting. Personal preference this one and for all those that are wondering I do not always use it in all my trades, but when I do, I like to do this. Locking in at 1.30 is also break even for those wondering in this example.
- Buy @ 1.30
- Price moves to 1.3062
- Pull Stop Loss to 1.30 to 1.3003 ( Locked in, now risk free )
Second Option of setting break even is with the Platform used itself. Two options I will give with this one, how you can have a EA ( expert advisor ) do it with MT4 and also how to do within CTrader, a platform from Spotware that is also a great Forex Trading Platform.
In first example, let me highlight how to do in MT4.
How to Set Break Even in MT4?
To have a EA do it in MT4 then a great option is using a EA called FTP=Breakeven. This EA is available here.
Tested on MT4 however make sure to test on your own version as well.
Once set up on a chart pair like other EAs each trade taken on that chart will then follow the set parameters you set in the EA. Example of this below.
Above – Settings in Common Tab to give EA Permission on your platform.
Above – Example settings of using a trigger of 48 pips in profit on a particular pair. This is where the EA will do its magic and will pull the stop loss to 3 pips in profit as set up above as well. This can be set differently in each pair for personal preference.
How to Set Break Even in CTrader?
To do in the CTrader platform is very easy to do and can be done by clicking on the defence ( shield ) symbol on a trade within that platform itself.
Then once in that part, you have many options like the image below shows, plus as a bonus a partial position closing option to left for even more management aspects.
In trade management you can select the armour symbol as like above.
To the right you can see the advanced stop loss section and a section called move stop loss to Break Even. Trigger when gaining, as an example I set 20 pips here in this example however any number could be set.
In the above example I just wanted to illustrate the advanced take profit to left on a 5K position, this is for example purposes only and would be different in a real trade however you can see how each level of profit can take a certain amount off. A very handy element of Ctrader and to use at certain predefined management points on a particular trade.
* Baring in mind these advanced actions of setting or moving the stop loss can only work by leaving CTrader or MT4 running, so if using make sure your computer does not have a sleeping function and that your internet is good. In some instances some traders have two internet connections with two different providers in case one fails computer will automatically connect to the one that is working.
For those wondering Ctrader is the main platform I use in trading, one of those reasons being that it has these in built features which I find extremely valuable to me as a trader and to save me time. For more information on this, the broker I use CTrader with is called ICMarkets.
Okay, so now that I have covered three options of use, I thought I would take a quick moment to highlight why you should do it partly manually and also use the platform as well. The reason being is it gives an extra layer of defence. This does not mean eyeing the charts like a hawk mind you, instead just means that you can set an alarm as an extra measure of protection at the same level you would for the break even or management point. That way you can monitor without lack of sleep and then you can check that management point got filled properly. Just a tip of course with this one, how you do it is up to you, but it does give an extra defence other than the stop loss that is set on entry.