break-even stocks risk managment

A while back there was an interesting TV series called “Breaking Bad”. It focused around Walter White; a chemistry high school teacher who breaks the conventional society rules to survive.

To survive in the stock market you follow the “Breaking Even” rule. Trading is all about probability i.e. chances of the stock price going up, down or sideways.

The best probable action you take determines your success in the trading business. It requires you to protect your capital with a defensive guard at all times.

What is a Break Even trade?

When a stock position is closed with a minuscule gain or loss, it’s called a break even trade. For someone trading daily, a 0.1% or 0.2% gain or loss might be considered as a break even trade. Mostly traders like to at least cover the commissions before closing the trade as break even.

General consensus among trading community is you either win or lose a trade. But to survive for the long run, it’s imperative to add break even trades in the mix.

Example Winning Trades

The trade is closed at the potential target or due to market circumstance and price action, trade is closed with gains before the target is reached.

win breakeven trade example dyn
win breakeven trade example short trade

Example Breakeven Trades

The trade is exited in the close vicinity of entry price. If the stock starts to move in the intended direction after exiting at break even, you can always reenter with a new trade.

breakeven trade example nuan
breakeven with reentry zones

Example Losing Trades

The trade is stopped out or price action warranted an earlier close resulting in smaller loss.

loss breakeven trade example hzn
trade example loss small breakeven

Conclusion

Try this proven formula to become profitable in the stock market

Net Gain = (win a few big trades) – (break even few trades) – (lose small)

$150 = $300 (2 trades) – $40 (3 trades) – $110 (2 trades)

There were only 2 good trades among 7 total trades, but it still resulted in net gain – The Power of defensive trading using breakeven strategy.

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When and how to use breakeven strategy
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