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Let us start with the basics. You are on this article because you want to know more about the famous trailing stop order. By the end of this quick read you will definitely be more familiar with this feature and we have no doubt you will be using it very soon.
For our discussion on stop losses, please visit this page for further details.
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A trailing stop is a special type of stop loss order. What makes the trailing stop special is that it moves relative to price fluctuations.
For example, you enter in a long position. When the price goes up, it drags the trailing stop with it. However, when the price goes down the trailing stop remains at the level it was dragged up to.
A trailing stop is a special type of stop loss order. What makes the trailing stop special is that it moves relative to price fluctuations.
In other words the trailing stop allows you to make your profits and continue to make them as long as the market goes in your favor and once the market reverses against you, it will close the trade at a price higher than where you set it. Basically, giving you extra profit for no extra work or analysis.
In more technical terms, the trailing stop is protecting your account from the downside while at the same time it is locking in the upside.
To give a better illustration let us add some numbers for you. You like to trade EURUSD and you are expecting the price to go up. Naturally, you enter a buy trade. The price you enter at is 1.1250. When you enter the trade, you place a 50 pip trailing stop. This means when the price moves up to 1.1300, your trailing stop would rise from 1.1200 to 1.1250.
The stop will remain at 1.1250 unless the price rises another 50 pips.
There you have it, what is a trailing stop and how to use it. We hope we have made it clearer for you. We also recommend you take a look at our articles in regard to take profits and stop losses. Now, let us switch gears as to why you should use a trailing stop.
There you have it, what is a trailing stop and how to use it. We hope we have made it clearer for you. We also recommend you take a look at our articles in regard to take profits and stop losses. Now, let us switch gears as to why you should use a trailing stop.
There are a couple of reasons why using it will improve your overall trading. If you are new to trading and you have still not gathered enough experience or discipline to time the market, then the trailing stop will definitely help with guaranteeing you some profits in certain situations. It will also help with minimizing losses in other situations.
Another great reason why it is important to use trailing stops is because it will eliminate your emotions almost immediately and completely. You must have the power to set the trailing stop and walk away. Once the trade is settled you can go back and review what you did right or wrong.
Congratulations. You have added a new weapon to your arsenal. With the trailing stop under your belt, you will be a better trader. Remember to trade responsibly and fully analyze any trade before you enter the market. Please refer to our Educational Center with a wide range of other topics we feel will better equip you to trade with better knowledge.
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