How does trailing stop work?
Trailing Stop - This is the number of pips by which the broker will move your stop order following the movement of the market.
Suppose you put stop order by N number of points what will happen:
The MetaTrader will not take any action until the position has risen in profit by N number of points. After that the terminal will put a stop order at a distance equal to N number of points from the current price.
2. Upon receipt of a quotation at which the distance between the current price and the placed stop order exceeds N number of points, MetaTrader sends a command to change the stop order at a distance equal to N points from the current price. Therefore, your stop order approaches the current price at a distance equal to N points.
In order to trade using trailing stops was profitable two rules must be followed:
1. The stop is the maximum that you are willing to lose in one test of your strategy.
2. Stop - you can only place a stop where you see the beginning of a big movement in an unprofitable direction for you.
The second rule is the most important, but the trader must use these rules in conjunction with each other.
As opposed to a stop loss, trailing stop is associated with an open position and is executed in the client terminal, not on the server. Consequently, if the trader turns off the computer, unlike stop orders, trailing stop stops working. When the terminal is switched off, only the stop signal set to trailing stop.
Trailing stop order very often used on the retail market and on other exchange-traded and over-the-counter financial markets.