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 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
27 Comments Leave a Comment
Instructive article! Thanks Mr. Nial!
Again and again great aricle !
Thank you Nial for this very necessary article.
I like this idea about a break-even mentality. As somebody still learning the ropes, experiencing the emotions of quite a few losing trades, break-even is very welcoming. It allows to enter trades and gain valuable experience without a woeful diminishing of capital. I looked back at some of my recent losses after this article and realized that many of them could have been salvaged if I moved the SL to BE at the appropriate time. I would have gained the same experience with my capital intact.
Another great lesson from the master”Nial” Thank you!!! Just a quick side note- I purchased Nials course 1 year ago this month and have studied his methods every day. I am profitably trading FX now. I have a background in trading and can tell you that if you want to be a profitable trader this course is your answer.Study it diligently and and understand risk management and you will be profitable. Thanks again Nial I couldn’t have done it without you and I look forward to meeting you in person one day!
Excellent and well said. Letting go of a loser, not being greedy and being patient is hard to do but a great thing to do in the long run. So much to learn.Thanks again. Keep the wisdom coming.
A nice tip to know, break even is a positive.
thanks so much nial. i definitely have found the 80+% of trading skill which is “mental” more times has to do with the exit rather than the entry. this is personal to me of course and so i really appreciate you writing this super-helpful article. you have taught me so much about the value of true confidence verses ego-driven arrogance. excellent job coaching, coach!!
I love this part of it modtly “What if we humbly reconfigure our mindset and view” . I experienced it and had a positive outcome for a period of time, then somehow got back to my old bad habit. thanks for your articles.
This is a true information for next level in trading. appreciate
yes nial,i quite agree, becouse when ever i feel a trade is not going quite as it should, the first thing that comes to mind is breaking even or close to that,and for someone like me who is new to forex, not loosing money has a priority over making money!..
Thanks for another great article
I although I have not as yet taken up the offer of your trading course… I certainly enjoy your news letters.
For me this week has touched on a very sensitive issue, regarding Breaking Even…
When opening a trade, on a positive early entry, invariably there are retracements, which in the early stages could force your account into negative territory…Are you suggesting, that every trade which approaches “0” ought to be closed out, before this dreadful number pops up ?? In other words when trades are in a trend , which are continually retracing while threatening our account, we ought to stay in the trade, hoping for a positive result…otherwise we jump out before every “0”.
Thanks again for your great news letters…
What i am saying is, learning to take break even is a good a skil as learning to take a profit. This article is not about the trading method or plan, it’s about training your mind. A break even trade ( 0 ) is a good result and should not be seen as a negative outcome emotionally. A rotation market which retraces within a overal trending move may move back to a break even point, that has nothing to do with the theme of this article, that is more “tradign method related” and will save that for another article and time. For now, focus on the idea that a there is nothing wrong with a break even trade, in fact it is much better than a loss, and frankly a break even trade could be seen as an “emotional” profit, because it will help kep your state of mind neutral and positive. This article is “brain training” and relates to your state of mind.
In my trading plan I have stated that there should be
1 – some loosing trades (stop loss)
2 – some break even trades
3 – some trades with a small profit
4 – a few big winners which is where the profit comes from
I also state that in order to get the big winners the other trades must be taken.
Excellent perspective. Two positive journal columns and only one non positive.Coincidentally 2:1 ratio, good stuff.
P.S thank you for your phenomenally clear and free videos you have informed this novice to a clearer and surer way forward, having spent months trawling through mostly hype and sales pitches you are a hurricane of clarity.
sincere thanks Niall.
Another great article teaching the emotional maturity required of a successful trader. What I appreciate most is the reconfiguration of our mindset to view the market as a “magnificently complex place full of opportunity”. “0” is not a bad thing in trading. Unless your records reflect fear, anxiety, etc.. I agree with both Mayowa and Charles. The character of a successful trader is special yet humble. Thanks Nial.
Thank you Nial for this.I completely agree with that. Your articles are very helpful.
You’re touching sensitive and important areas of our learning process. It provokes thought and contemplation. Thank you.
How can I ask you a specific question about the course material that I didn’t understand?
You can email me with question for members course etc.
Thanks Nial, , Yes Unfortunately your opening paragraph accurately describes my trading pattern this past week.
As a new trader your experience is a great inspiration and help.
Another great article.
Thanks Nial…another awesome perspective in how to see and trade the Forex Market…I hear you!!
Amen to that Fuller. I’m not afraid of a loss but break-even really makes it easier to refresh the mental computer to get back in the race. Break-even keeps me sane and in the game longer.
Thank you for this lesson. This is my first lesson and I am ready to empty my head of all that has in there before and now and ready to get back to the basics and learn all i can about price action trading. I will make some money again.
Good article, although I think you need to give a trade room to breath and sometimes stopping yourself out at BE (zero) or thereabouts can sometimes stop profits.
You’ve got the truth of the market in you Nail…Pour more out bro,am are ready to learn….this is nice
Thanks for another great article. I guess getting a “Zero” is something we are trained to avoid from early school days. On the surface “0” also represents “waisted” effort and delay in reaching a profit goal and is thus very frustrating. Your article helps me to see this occurance in trading in a better light. Thanks again Nial.
We appreciate your continued lessons. Each one is very helpful and very practical.