Forex Trailing Stops, How to Use and The Risks

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If you are a trader, maybe you have felt annoyed because you got a little profit, but in terms of price suddenly reversed direction until it touched a stop loss? Usually, the benefits that have been enjoyed before are suddenly eroded so that the order becomes a minus.

Maybe this incident has happened to you and even often makes traders feel traumatized to hold their positions for too long. Therefore, to prevent such a disaster, you can use the Trailing Stop method.

Before regretting, you need to understand the basic meaning of Trailing Stop. Here’s the explanation.

What are Trailing Stops?

Trailing Stop is a closing order in forex trading that has a moving (not static) nature. Very different from a regular stop order, a trailing stop will appear and follow the direction of price movement with a predetermined pip distance.

How to install Trailing Stop

After knowing the explanation, you also need to understand how to install a Trailing Stop in Metatrader. Note, this function can be activated only on current orders. Simply put, open an order first. Then on the order, right-click and select “Trailing Stop.”

After opening it, you can set the Trailing Stop distance according to the available options. Next, you can also write down some Trailing Stop distances as you wish by clicking “Custom.” If there are no matching numbers, for example, 70 points or 100 points.

But don’t miss it, it needs to be reconsidered if you can’t set the Trailing Stop lower than the broker’s minimum standard. For example, the number 15 points appear on “Custom”, meaning that you cannot set the Trailing Stop lower than the number 15 pips.

Use of Trailing Stops for trading

In general, you will use Trailing Stops for trading by storing at 20 points and buying orders at 1.3000. if the price rises to 1.3021, then the trailing used will trigger a way to activate Stop Loss (SL) automatically at the price of 1.3001.

Simply put, the Trailing Stop distance is 20 pips, i.e. from 1.3021 to 1.3001, you can still get 1 pip profit if the price suddenly drops to touch the Stop Loss.

However, if the price rises to 1.3030, the Stop Loss will also automatically follow the increase and be at 1.3010.

Judging from the way it is used, it can be said that the more price increases you get, the more profit you get and the Trailing Stop locks in.

For example, after touching the 1.3030 figure, the price fell sharply until it passed the entry-level of 1.3000. automatically your order will remain safe because it is closed instantly.

Knowing the risks of using Trailing Stop

Although Trailing Stops are known to maximize profits and prevent profits from turning into losses, it turns out that Trailing Stops also have risks that must be considered carefully. Usually, the risk will arise when the price is not moving in a trend.

For example, if the price has gone up at 1.3025, but the price has actually decreased until it hits Stop Loss at 1.3001, it is very clear that a temporary profit of around 25 pips will be wasted and you can only enjoy 1 pip profit. That is, you still can not get the maximum profit.

From the example above it is necessary to understand, the main function of the Trailing Stop is to only secure, not maximize profit.

Even though the Stop Loss is hit and you fail to get the expected profit, the Trailing Stop itself has carried out its function.

Because the Trailing Stop has secured a portion of the profit and prevented your order from experiencing a loss. The key to using a Trailing Stop is the right moment. If there is an indication that the price will move in a fast trend, then you should use a Trailing Stop.

If the use of a Trailing Stop does not have a trigger factor that can move the price in a trend, you should reconsider before using a Trailing Stop.

In a situation like this, running the strategy from the sideways and trying to hit the Stop Loss and Take profit targets will be better than applying the Trailing Stop.

In conclusion, Trailing Stops have advantages and disadvantages. The advantage is that the Trailing Stop will provide an opportunity to get a big profit when the market moves in the same direction for a long time and a large number of pips.

As for the drawback, the Trailing Stop itself will eliminate the profits that have been obtained previously when the market changes direction and touches the Stop Loss that has been installed. In essence, a better and suitable condition for placing a Trailing Stop is when the market is moving fast.

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