To Keep Yourself From Losing Money You Must Have A Forex Trailing Stop
What is a Forex Trailing Stop?
What is a forex trailing stop? A trailing stop order is used in addition to a regular stop-loss. Every time you place a trade, you always add a stop-loss. This means when the price reaches your desired level, your trading software will automatically close out the trade. A trailing stop edits the stop-loss to move forward by a certain amount in the same trade. Confused?
If you see a strong trend upwards on a forex graph and you buy into that pair, you should add a stop-loss to ensure you don’t lose money if the pair suddenly falls. However, you also don’t want to put a ceiling on your profits, so you can add a trailing stop order. At first glance, it seems like if you use a trailing stop you are ensured a profit, but that isn’t always the case. Here’s an example:
Assume you are buying dollars for Japanese Yen (USD/JPY) at 45.00 with a stop at 50.00. If you add in a 20 pip trailing stop to that, each time the pair moves 20 pips from where you entered the trade, then the stop-loss also advances by 20 pips. As a result if the pair moves from 45.00 to 45.20, then our stop-loss moves from 50.00 to 50.20. The stop shifted, but notice that it didn’t ensure you a profit on the trade.
When is the best time to use trail stops? The optimum time to use a trail stop is when you see a strong upward trend. In other words, the angle of the graph is very steep. If a pair is in a mild trend or not moving much at all, trail stops won’t do you much good. Trail stops are for making a profit in a very short amount of time. This means a “fast-moving” pair is perfect for using trail stops.
Pounds and Yen (GBP/JPY) is often a rapid mover. It can change by hundreds of pips each day over the course of a few hours. Conversely, the Swiss Franc and Japanese Yen don’t change very quickly, so it’s not a good choice for trail stops. Practicing trail stops on a demo will give you a chance to understand trail stops in a more hands on way and keep you from losing money.
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Tagged with: Demo • Forex • Graph • Japanese Yen • Jpy • Money • Optimum Time • Pip • Pips • Profits • Stop Loss • Swiss Franc • Trading Software • Trailing Stop Order • Upward Trend
Filed under: How To Trade Forex
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