As soon As the transaction is open, there are two possible outcomes: the best outcome it can make money; at worst, may lose. Between the best and worst outcomes is the break-even point, and because of its promezhutochnoi it has a psychological value.
She shared the fear and hope on the one hand and greed on the other. Side, where You are determines how You see this anchor point.
When we are closer to the worst outcome, the break-even point – the ray of light of hope. People have a natural desire to avoid risk and losses. When a trade shows a loss, many try to hold her, hoping that she will return to the breakeven point where no profit, but at least no losses. But hope often leads to losses. Hope has no place in making trading decisions. Opening the transaction entry point and protective stop should be calculated in advance. If this is done properly, there is no reason to allow hope or any other emotions affect your trading decisions. You have to trade almost mechanically. If the trade goes against You, just exit as soon as price reached the stop. Don’t let hope play a role in your trading plan.
There are many more reasons to reduce your losses than to hope for a reversal of a losing trade. When You are in a losing trade, You are seldom alone there. Many other traders also, for example, trying to get out of long positions without loss. And there are shorts that protect this area to protect profit. It is unlikely that You can win in this competition, so it is better to cut your losses and move on to the next deal.
Look at the break-even point with profitable very different. When a trade is profitable, traders tend to take profits too early, again, because they are not willing to take risks and to accept even potential losses. Before leaving, however, they do not give rise to profit. This limits the size of the winning trades, then the total profit will be less. But there is a way to lock the profit that allows the transaction to work longer and generate more profit. As soon As the profit exceeds the initial bet, the stop can be moved to breakeven. This strategy will allow You to fix some initial profit at virtually eliminating risk. All You can lose is used. Besides reducing financial risk, it also eliminates emotional stress. And reduced stress means that You can look at the big picture more objectively.
Unfortunately, many beginners so fixated on profit taking and demonstration of the rainbow of the profit/loss statement that they can’t bring himself to move stop to breakeven. They feel that the strategy binds them and may limit the potential profit. They struggle with the desire to move the stop away from the initial value, or cancel it altogether. It would be bad on account. Feet should never move in a big way, or is cancelled altogether. Such methods will cause emotions which will affect trading decisions and, ultimately, will lead to the collapse. Discipline – the best strategy.
It is useful to understand the psychological value of the break-even point, either on one or on the other side of it. On one side You will overwhelm fear and hope, on the other – greed. It is crucial to recognize these emotional tendencies and do everything possible to counteract them.