The breakeven price for a trader is one of the more important lines on the chart. It represents the line between winning and losing on the trade or on the day and is important to keep track of and be aware of.
In the end, this breakeven line is a result of entries, exits and the commissions payed to your broker. The term Theoretical Average refers to the calculated average of these values.
During a trade, the study displays on the chart the breakeven line taking into account scale-ins and scale-outs. When there is a single entry (a single trade), this breakeven point is just that, the entry price. When scale-in's and scale-out's are involved in a trade, the calculation can get more complicated to do in real time. This study is a tool that assists just in that.
Enter +1 contract at 100 - line is drawn at 100
Price moves up to 110 and add another contract - line moves to 105
Price then moves up to 120 and we take off one contract - lines moves to 90
Why? if price goes below 90 we would be losing on the trade
The line is only displayed while a position is open.
When flat, it is not displayed
The above example is a basic example that does not include Round Turn Commissions (RT).
The study also supports a calculation that takes into account the full trading day's profit and loss.
Round Turn Commissions (RT)
The outcome of a trade the actual trade pnl + any commissions.
The study includes an input to set the Round Turn Commissions (RT).
RT is the $ cost of entering and exiting a single contract. For example, if RT is $5, this means that trader is paying $5 to enter and exit a single contact (does not matter if entry is long or short, its all the same)
The RT can be included in the Theoretical Average calculation so that it shows the breakeven point including the round turn commissions.
Assume RT == 10
We enter +1 contract at 100 - line is drawn at 110 (market be == 100, RT = 10, Qty 1)
Price moves up to 110 and we add another contract - line moves to 115 (market be == 105, RT = 20, Qty 2)
Price then moves up to 120 and we take off one contract - lines moves to 110 (market be == 90, RT = 20, Qty 1)
Why? if price goes below 110 we would be losing on the trade
Include Previous Trades From Today in Calculation
No - shows the Theoretical average for the current trade
Yes - takes into account trades that were executed earlier in this trading day. For example, if there was an earlier trade with with realized pnl -$200, when a new trade starts and we show the Theoretical Average, we would take the -$200 to account in the breakeven point