Trailing stops. What is a trailing stop ("Forex")?

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

In the process of trading on the Forex market, it is extremely important to use tools that help regulate not only losses, but also profits. The most common tools are considered to be stop losses and take profits. No less significant and useful assistants in trading currency pairs are trailing stops. With the help of a universal program, any trader can easily squeeze the maximum amount of profit out of the market, staying in it for as long as the situation and the open deal allow. So what is a trailing stop ("Forex")?

Getting to know the trailing stop

The expression "trailing stops" literally translates from English as "movable stop". In other words, they represent an order to the broker, according to which the stop loss will follow the price of the currency instrument in the previously specified direction. The main purpose of the tool is to facilitate the trader's manual trading and allow him to develop a strategy with minimal losses. Using trailing stops, you can keep the profit that the market allows you to get.

Why does a trader need trailing?

Mainthe task of trailing is the implementation of a slow and systematic following of a stop loss in the direction of price movement at a distance that the trader himself indicates. A flexible loss limiter and at the same time a profit fixer is designed to competently support open positions, to achieve a high level of professionalism in trading.

How does a trailing stop work?

Trailing, which is one of the stop loss modifications, is already built into the trading platform. There is no need to search for an adviser on the Internet and install it in the terminal. Everything has already been thought out by the platform developers. To activate the tool, it is enough to carry out a series of manipulations on the terminal:

• open a position or set a pending order;
• right click on the "line" of the order, a window will open;
• select the desired function from the expanded window;
• set the trawl to a certain value in points.

As soon as the price of the currency pair goes up for a distance equal to the trailing parameters, the instrument will move the stop to the level without losses. The movement of the floating limiter will continue until the price reverses or rolls back a distance greater than the parameter specified in points when setting up the instrument.

What standard instrument options do brokers offer?

Each broker has its own trading conditions and tools. Looking specifically at trailing stops, you can seesignificant difference in settings. Most brokers offer a "gold standard". Most often, the minimum trailing parameter is 15 pips. Depending on the manner of trading, you can set the indicator up to 50 points, but no more. The settings offered by brokers are limited to a small range in which the trailing stop will move.

How to set the instrument in the correct format, each individual currency pair suggests. Instrument parameters should be adapted to currency volatility. For example, to follow the price of exotic pairs such as Canadian, Australian and New Zealander, only 25 pips are enough. Euro and dollar require at least 35 pips with measured movement and in the absence of economic news. As for the franc, here you need to set the parameter at the level of 50 points. If you do not compare the activity of currency pairs and the parameters of the instrument, it will not be useful. Most likely, the stop order will be hit by a price jump, and then it will go to the priority side.

How does the market affect trailing efficiency?

Each trader's trading tool requires deep study, including the trailing stop. "Forex" is multifaceted, the movement of currency pairs on it is not regular. In order for the tools to be profitable, it is necessary to comprehend the intricacies of their application. Their effectiveness depends on how much a trader is guided by the wave nature of the market. As long-term practice of trading in currency pairs has shown, each financial instrument has its own strength of movement.

• USD/EUR - the pair can move up to 60 points within an hour. This is a high volatility indicator, which dictates the installation of a trailing stop at a level of at least 35 pips.
• USD/CHF - good trail for the pair, at least 45 pips.
• USD/CAD, NZD/USD - due to the calm movements of the pairs, the trail indicator is at least 30 points.
• AUD/USD - 25 pips.
• GBR/USD - effective earnings are available if the trail does not fall below 45 points.

Trying to remove the maximum profit from the market, do not neglect the above indicators. A fixed number of points is the size of the rollback that each pair gives during a purposeful movement. If, in an attempt to save money, you set a minimum trailing stop, it will be knocked out, and it will be possible to skim the cream off the currency market in an insignificant amount. The effectiveness of a tool depends only on the ability to use it.

When to activate the trawl?

In order for the instrument to make a profit, you need to carefully study it. This also applies to the built-in functionality of such a tool as trailing stop. How to set the correct parameters, we will understand below. The result of trading will depend on the activation time of the instrument. It is not necessary to activate the profit regulator immediately, except in situations where the market is affected by the release of news. Each trader evaluates the profit and loss on each trade, and it so happens that the active price movement indicates that the fall or rise of a certain pair willcontinue until a certain point outside the level. At the profit itself, the limiter is removed, and the trawl comes into play. Thus, he will take profits until the price reverses. You don't have to sit in front of a computer monitor. As the price of the currency pair changes, the trailing bar will also rise, which will provide the trader with a good profit.

Trailing stop in news trading

In short-term trading on the news, the trailing stop can become an indispensable assistant. What it is, we considered earlier, and now we will figure out how to use it in this situation. Trading will be conducted on pending mirror orders with pre-set stop losses, but no take profit. Rules for news trading are a separate topic, they have a clear scheme, but the essence of using the trawl does not change. He takes pride of place. It is impossible to predict in advance how far the price will go and go. It can be 100, and 200, and 500 points. In the history of the market, there was a situation recently that after a change in the interest rate, the CHF/USD pair jumped by 33,000 points by 4 digits. This is a global movement that could bring uncharacteristic profits for daily trading. The conclusion is quite obvious. A floating profit-taking in this particular case could help to increase capital several times over.

Trailingator Unique Expert Advisor

The upgraded version of the built-in trawl into the trading platform is an EAtrailing stop. It aims to reduce the manual labor of each trader. The trawl is carried out automatically. The main advantage of the Expert Advisor is that, compared to the built-in version, it activates itself. All that is required of the trader is to set a clear distance in points, after passing which the currency pair automatically activates the instrument. This is due to the fact that every professional speculator is well aware that trailing a deal until the price passes less than 50 points is simply illogical. Rollbacks and jumps will bring down the order, not giving the opportunity to earn. Only long practice allows you to understand what a trailing stop is. "Forex" itself is very unpredictable, and learning it, in fact, like all available tools, is a long process, complemented by hard practice.

What are the disadvantages of using a trawl?

Trailing, like an EA for a trailing stop, has its drawbacks. Their quantity and quality will depend solely on which trading system is used by the trader and how flexible it is. It is worth noting that the trailing is very effective only when trading strongly with the trend. When the market is in a flat, you should not use this tool. Price movements during periods of stagnation are very unstable and short-term. Predicting them accurately is very difficult. Without a purposeful movement, even at the best entry point to the market, it will be very problematic to take the minimum profit.

Agree, the exchange rate does not always move in the same direction to orderthe trailing stop followed the price smoothly. There are cases of a wide-format flat, when the trail will constantly bring down, and the trader will not take profit even at the best entry point. A floating stop cannot be the basis of a trading system. It can serve as an all-purpose supplement that should be used in certain situations and absolutely avoided in others.