Metatrader Overview. Break Even.
Break Even is a special logic to save profit while trading Forex. Break Even allows to close order when loss is on zero point.
Break Even is a special case of Trailing Stop. The difference is that the Stop Loss value is set only once when the required level is reached and it does not change any more till the order is closed. Break Even allows to fix Stop Loss value at the break-even point. To make a newly opened order reach the break-even point, it has to surmount the spread which is a distance between purchase price and selling price. After this, the Stop Loss value needs to be fixed in this point. In this manner, if the price turns in the opposite direction then the order is closed with zero losses.
Break Even point can be fixed using automatic Stop Loss. This is the most reliable method, however if broker configurations do not allow fixing this value so close to the current price then the closing can be done manually.
You can also combine manual Stop Loss and automatic one in the logic of Break Even. I.e., to close the order at the break-even point in any case, but to set the automatic Stop Loss if possible.
Let’s look at example with manual Stop Loss value. Break Even=BE=5 pips. This means that the Stop Loss value will be set 5 pips higher than the break-even point. Current Bid price =1.4038, Ask=1.4040. We set a BUY order. We have the following characteristics of the opened order: opening price is 1.4040. Current profit is 2 pips. Closing point as per algorithm is set at the level of 1.4045, however we have to remember that the algorithm will start operate only when the price will surmount this level.
The price got up by 10 pips. Current values of the order: opening price is 1.4040, Ask=1.4050, current profit is 8 pips. Condition for triggering of the Break even algorithm is satisfied. Now, when the price will move in the opposite direction and will pass the BE level=1.4045, the order will be closed.
The price lowered by 8 pips. Current values of the order: opening price is 1.4040, Ask=1.4042, current profit is 0 pips. Condition for triggering of the Break even algorithm was satisfied earlier. Order is closed as the price surmounted the BE level in the opposite direction. In this example, we see difference between conventional and automatic method of order closing. In automatic mode (Stop Loss=1.4045), the order was closed with 5 pips of profit. In our case the order is closed with zero profit level, because the closing method was manual.
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ABOUT THE AUTHOR
Alexey Koshevoy, AirBionicFX founder and CEO