When to Move Stop Loss to Entry? Best Breakeven Strategies for Trading
Moving stop loss to entry saves me thousands of dollars every week.
In this article, I will teach you 3 best breakeven strategies that I use in trading.
Take notes and learn when to protect your trading position.
What Breakeven Is
Let's start by discussing what breakeven is.
A breakeven level is a price level where you close your trading position with 0 loss and 0 profit.
In this example, we have the active trade on GBPUSD.
Our breakeven level in that case will be the entry level.
Moving the stop loss to the entry will mean moving it to breakeven.
If the price drops, the trade will be closed at entry with no loss and profit.
Holding a trade position with a running loss, we should move our take-profit to entry level, to close that trade on breakeven.
In our example, doing so, the trade will be closed with 0 profit if the price goes up.
When to Use Breakeven
Let me explain the instances when moving stop loss to entry will protect you from unexpected losses.
1. Ahead of High-Impact News
No matter whether you are a technical or fundamental trader, you should always remember that high-impact news and economic data releases can easily screw even the best trading position.
For that reason, moving a stop loss to entry ahead of high-impact news releases is a must-use strategy.
Imagine that we have an active buy trade on Gold.
In 25 minutes, we see a high impact US fundamental data in the economic calendar - Manufacturing PMI.
By moving our stop loss to entry ahead of the news, we protect our trading position ahead of a sudden volatility spike.
As you can see, Gold turned bearish after the news and the trade was closed on breakeven.
When exactly should you move a stop loss to breakeven ahead of high-impact fundamental data?
I recommend doing that 10-15 minutes ahead of the release.
What high-impact news should you focus on in the economic calendar?
I recommend targeting all high-impact US news and high-impact news of the country whose assets you are trading.
For example, if you trade GBPJPY forex pair. You should move your stop loss to entry ahead of high impact UK and Japanese fundamentals.
While the economic data releases are scheduled in the economic calendar, the impactful events such as natural disasters or terror attacks are unpredictable.
In case of an occurrence of such an event, immediately move your stop loss to entry for protection.
For example, if you hold a buy trade on WTI Crude Oil and you see the news that US started to strike Iran, it could be a perfect reason to protect your position moving stop loss to entry or even manually close the trade.
Such a strategy would help you avoid unexpected losses.
2. Reward-Based
Another simple yet effective breakeven strategy is to move a stop loss to entry when the price moves a sufficient distance from entry.
There are a lot of different ways to objectively measure a sufficient distance.
Let me show you 2 most common ones.
The first one is called reward-based.
When the price reaches a level where running profit equals 1 reward, you can protect your trade by moving stop loss to entry.
Of course, depending on your strategy, you can increase or decrease a reward value for position protection. 1 is just the most common one.
Holding this trade on AUDJPY, take profit is very far from the entry level.
A trading position can be protected earlier by moving stop loss to breakeven when 1 reward level is reached.
Another method is pattern-based.
If you trade chart patterns, you can measure the length of the pattern. Its projection from your entry can be used as the level where you should move your stop loss to entry.
Check the price action on GBPCAD.
The price formed a double top pattern.
Taking the trade after a breakout of its neckline, you measure the pattern's range.
Once that distance is passed by the price from the entry level, SL can be moved to breakeven.
3. Before Market Closes
If you are a swing trader or if for any other reason you prefer to keep your trades over the weekend or overnight when the market is closed, you can move your stop loss to entry before the market closes.
It will protect your trade from the news events that may occur while the market is closed.
In case of a price reversal after the market opening, your trading position will be closed on breakeven.
Check this swing sell setup on GBPNZD forex pair.
Moving the stop loss to breakeven just an hour before the market closed on the weekend would save you from unexpected losses as the pair turned bullish after the opening because of the news.
Summary
Position protection is the number one risk management tool that you should use.
These 3 simple strategies will help you avoid losses in trading Forex, Gold, or any other market.
