Trailing Stop (Tralling Stop): do not miss profits in the market
In articles the term "position management" is often used, but in practice most new traders have little idea of the difference between support and simple monitoring of an open position. Today we will get acquainted with one of the methods of position management on the currency market - the trailing stop (Tralling Stop).
Tralling Stop - floating stop loss
As a rule, trailing stop is used in trend strategies when it is necessary to preserve the existing profit, although it can be used in any trading tactics.
For example, after the price rebounds from the support line of an uptrend, you open a long position, setting Take Profit at the resistance line, and the stop loss - below the local minimum. As you know, the market is fickle. Suppose, due to some factors, the price did not reach your take profit order. The next time you look at the trade, instead of the expected profit, at best you will have time to fix the rest of it, at worst you will get a loss on the stop loss.
How to avoid it? This is what a trailing stop is for.
Trailing Stop (Trailing Stop) - is an algorithm for controlling Stop Loss order without active participation of the trader. Trailing stop allows the stop loss level to move behind the price, in case it moves in the right direction.
How to set a trailing stop on Forex?
Simply put, a trailing stop on Forex drags with it a stop-loss order on the number of points specified by the trader, for which the trader's slang is called a "trawl". For example, at the level of 1.24643 there is a Sell trade on EUR/USD with Take Profit 1.24530 and Stop Loss 1.24709.
In order to set a trailing stop in trading terminal MetaTrader 4The context menu must be called by right-clicking on the transaction line.
In the menu you can choose the suggested number of points or set it yourself. After setting the trailing stop, the value of stop loss in the line of the trade will be highlighted in yellow. It means that the trailing stop is activated.
IMPORTANT: When setting a trailing stop, pay special attention to the fact that the value of "pip" for a five-digit quote is not equal to a standard pip, but represents the minimum value of price change. That is, the value of "50 pips" in the terminal with four-digit quotes and "50 pips" in the terminal with five-digit quotes will differ by a factor of 10 (5 pips in four-digit quotes = 50 pips in five-digit quotes).
Once the price moves in the direction we want and reaches 1.24593, the trailing stop will automatically move the stop loss to Breakeven at 1.24643 and if the price declines further, it will move the stop loss 50 pips away from the price. You can see on the screenshot that when the price reached 1.24582, the trailing stop loss moved to 1.24582 + 50 pips = 1.24632.
It is worth immediately noting that the trailing stop moves the stop loss only when it moves in the right direction. That is, when the price moves in the direction opposite to the open trade, the stop-loss will not move away from it.
The screenshot below shows that after moving the stop-loss to the level of 1.24632, the price corrected by up, but the stop loss remained in place and began to move only after the price resumed its decline and the distance between it and the stop loss again exceeded the set 50 pips.
You can delete trailing stop through the same context menu. If you click on "Delete All Levels", the trailing stop will be canceled for all open orders on which it was set, if you click on "No", the trailing stop will be removed from the selected order.
Nuances when using a trailing stop
Trailing Stop will begin to move the stop loss only after the price passes the number of points you set. Until then the terminal will not take any action.
When using a trailing stop, you do not need to place a stop loss order; the trailing stop will place a stop loss itself at the level of the deal opening once the price has passed in the desired direction the specified number of points. However, the experts of ForTrader.org magazine recommend putting a stop-loss order when opening a deal, because no one is insured against force majeure and the price can change without passing the required distance for triggering a trailing stop.
As mentioned above, a feature of the trailing stop is that the stop-loss moves behind the price only when it moves in the right direction. In other words, simply put, the trailing stop pulls the stop loss, but never moves it away from itself.
The next feature is the binding of the trailing stop to the trading terminal. That is, the trailing stop function will only be active when the terminal is on. If you close the terminal, your stop-loss will not move anywhere.
There is always a minimum distance from the current price at which a trailing stop can be set. It may vary from broker to broker. In the example above, it was 50 pips. For a beginner it is especially important to correctly calculate the trailing stop level. If it is too high, you will receive minimal profit if the price turns, or the trailing stop will simply not move the stop loss to the open order level. If the trailing stop level is too small, there is a high probability that the order will be closed at the slightest price noise.
As you can see, there is nothing complicated about using Tralling Stop on Forex. Using demo accountEach beginner in the foreign exchange market can find the optimal trailing stop levels for their trading tactics, thereby turning it into another tool for profitable trading in the market.