The Importance of Shifting Your Stop Loss To Breakeven
This is a very important blog post that I believe all traders must read as this tip can help you to reduce your losses in trading which will eventually make the difference between a profitable trader and a losing trader.
I have readers constantly asking me whether they should refrain themselves from trading whenever there is a news release as they experience the problem of price moving against them suddenly after the price has moved 20 to 30 pips in their favor turning the trade into a losing trade.
For me, I am a pure technical trader who do not even know when the major news is going to be released. However I have the habit of shifting my stop loss to breakeven whenever the price moved certain pips in my favor. If you are a user of my forex signal service, you should have seen me doing it so many times already.
The reason why I do that is to protect my account. Most new traders are only concerned about taking profits and they do not care anything about their account. In fact, there are new traders who set their target profit first before they set their stop loss and this clearly reflect their concern.
Do you know that when your account drop by 10%, you will need to make 11.11% to make back your previous losses.
For example: You have $5,000 and you lost 10% for the month which means that you lost $500. With $4,500 now, you will need to win 11.11% to make back the $500 that you have lost. The more drawdown your account, the harder it is for you to recover it.
That is why it is very important for you to have the habit of shifting your stop loss to breakeven when the price moves certain pips in your favor to protect your account.
Below is a video to show you the importance of shifting your trade to breakeven
The outcome of the trade
If I did not shift the stop loss to breakeven, this trade will have became a losing trade instead of a breakeven trade. Although you can see that there is a -$40 and -$25, it is due to the spread of the trade and not the actual loss. If it is a loss, I will lose about $1,250 each for the 2 trades.
All professional traders are more concerned about their account than their profits as we believe in living to trade another day. Even if we have a losing trades, we will wait patiently for the next setup to make back the losses while new traders will immediately enter another trade blindly hoping to make back their losses.
Trust me, the only way you can make back your previous losses is to have enough capital in your account to do that. Therefore it is more important to protect your account than concentrate on taking profits.
As for how much profits you should have before you move to breakeven, it really depends on each individual forex strategy you use. For me, I will shift my stop loss to breakeven when the price moves 25 pips in my favor. The value of 25 pips is being taken after doing a lot of back testing to get the optimum value.
If your breakeven stop loss shifting is too tight, you may find that you have more breakeven trades than winning trades. If your breakeven stop loss shifting is too loose, you may find that you have more losing trades than breakeven trades. Therefore you must do a back testing for your strategy to get the optimum level.
If you have the habit of shifting your stop loss to breakeven, then you will not have to worry about whatever news release is coming as your account is being protected already. That is why I never look at the news and can still stay profitable for so many years.
I hope that this post can greatly affect your way of trading and eventually turn you into a profitable trader.
If you will like me to trade your account for you and help you recoup back your previous losses or help you grow your trading account, you can take a look at my Forex Signal Service below
For those of you who are totally new to forex trading, I will suggest that you read through this blog post that I have written for beginners
If you are interested to learn how I do my forex technical analysis, you can take a look at the post below