The Psychology of Breakeven Forex Trades

Being profitable in the Forex market is where we all want to be. How we measure this is often by quantifying our results in terms of profit versus losses. Yet, this measure cannot be, by itself, sufficient to sustain our motivation. All traders have periods of losses en route to profits. As a result, a single-minded desire for profits may itself be a factor in furthering losses and actually reduce the potential for success. For once a person desires profits, resulting losses turn into disappointments. The experience of disappointment may then unleash a host of destructive emotions. The problem then becomes how we handle these losses and not the fact that they occur.

How can a trader overcome becoming obsessed with profits and being emotionally unprepared for the realities of losses?

The Solution

The solution is to step outside the conventional profit and loss paradigm that dominates us and realize that between the realm of profits and losses there is a neutral zone that allows the trader to PAUSE. From a mathematical perspective, this neutral zone is represented by the number 0 (zero). Obviously one moves from the negative numbers of losing trades to the positive column of winning trades.

But having trades that are break-even, or 0 (zero) on the profit and loss register or reasonably near that range, is actually a very good outcome. Foremost, among its benefits is it allows one to keep intact the capital at risk for another and perhaps better trade. Breaking even may not elicit the praise of others but it is a sustaining event.  How you get to breakeven is also important.

If the 0 (zero) entry on the trading log is the result of a profitable trade turning into a loss, it may represent an astute observation by the trader that conditions have changed and getting out is preferable to seeing negative numbers. On the other hand, a break-even trade may be the outcome of a quick exit by the trader fearing a loss. A frequent number of these break-even trades in one’s account may reveal the trader is becoming overwhelmed by the setting in of destructive emotions such as anxiety, guilt, fear or greed. We all know that this is not an uncommon experience. However, the break-even trade also can become a huge opportunity to evolve into a mature trader by going beyond an obsession for profits.

Let go of your attachment to trades

Many of us approach each trade in an arrogant fashion, as the chance to grab pips. This concept reflects a commonly held view that trading is a zero-sum battle between the trader and the market, where the trader wins or loses against the market. But some of the best trading methods produce a win ratio just above 50% or less!. The majority of trades are roughly break-even. Every flat or small losing trade keeps us in the game. Traders get in trouble when they stubbornly hold onto a trade refusing to believe their hunch, system or simply their timing, is wrong.

Yet, there is a better and ultimately more effective approach. What if we humbly reconfigure our mindset and view the forex market as a magnificently complex place full of opportunity that when properly understood, provides valuable trades? We would experience a shift in our entire mental and emotional focus. The market then becomes not our enemy, but a field of opportunities that when understood, can produce profits. Those who take this stance do not demand nor expect pips to be handed over as if they belong to them. Instead, they aspire to obtain a great trade by recognizing winning price action patterns. Pips or profits become what we earn by applying our knowledge. The market becomes our partner, it is a reciprocal relationship. The ability to trade each day by emptying ourselves first of ego satisfaction may not be easy, but it is the distinguishing characteristic of traders in the process of transforming and evolving themselves from frenetic beginnings to a level of competence.

If your next trade is neither a profit nor a loss, pause and relax, because in the case of Forex trading, the result of 0 (zero) or break even is a positive number in the long run.

Article by Nial Fuller (Forex Trader and Coach) and Josephine Martens ( Bsc (Hons), Msc ) – Copyright 2010