The literal meaning of breakeven is you do not make or lose money. You get profit if you win more trades than your trading break even percentage. On the other hand, you lose money, if your number of winning trades is fewer than the breakeven percentage.
Calculating Trading Break Even
In calculating the trading break even, we need the stop-loss and the target setting for the trading strategy. The stop-loss and target are represented in pips (forex), ticks (futures), cents (stocks), or the amount of money.
The result of this calculation is in the form of a percentage showing the number of winning trades you need for the break-even scenario. If you do not use the exact same stop loss and target on all of your trades, then, you can use the average loss and average win over many trades.
Your average loss equals to your stop loss, meanwhile, your average win equals to your average target. Now, this is the formula to calculate the trading break-even.
Trading Break-Even = [(Stop-Loss / (Target + Stop-Loss)] x 100
For instance, you trade the same stocks every day and risk around $0.08 per share with a target of $0.22 per share. Then, you only need to win a little more than a fourth of your total trades [$0.08 / ($0.22 + $0.08)] x 100 = 26.6%].
Ways to Use Break-Even Percentage
The main function of the break-even percentage is to know the number of winning trades required to get profit with various targets and stop-losses. Thus, whenever you find a new trading system, you have to find the optimal target and stop-loss set.
Then, you have to find the break-even percentage.