Trailing STOP LOSS

In addition to using a Stop Loss to limit losses as explained in the previous page, you can also use a Stop Loss to optimize profit. This technique is called a Trailing Stop. This might sound a bit odd, how can it be used to optimize the Stop Loss profit. For more details you can read the following illustration.

Look at the image below. For example, you have to open a BUY position in point a. Then the position is starting to yield a profit to the point b. You start thinking of closing the position. But you are hesitant because of the possibility of price movement can still be continued. Then you set a Stop Loss, for example, as much as 50 points (Stop Loss level). If prices fall by as much as 50 points, then the position will be closed automatically. If it happens, at least would still get a profit (the Profit is locked). Current profit is locked is not too large.

It turns out that prices could still rise. Stop Loss defined not previously exposed. Now the price has reached the point of c. Then you change the Stop Loss to position more over again, with the same level of value, i.e. 50 points. Note that profit already locked is now higher.

The new Stop Loss has not been exposed. Prices still rise even higher, amounting to a point D. you then raise the position of Stop Loss anymore. Now the profit locked is now much higher. Unfortunately after a long price reverses direction. Stop Loss is hit. Prices continued to fall. But keep your profit, namely in the amount of profit that is locked.

And the explanation above it can be seen that the Trailing Stop is useful to optimize profit and can minimize potential losses. And the example above, the potential change Stop Loss is done manually. But fortunately in some trading platform the Trailing Stop can be done automatically. If your broker supports MetaTrader, there are some scripts that could help set the Trailing Stop.

On the automated Trailing Stop is usually very easy to do, that you can just enter the values of Stop Loss level desired. Stop Loss will automatically move in the same level against the range of prices.

On some of the trading platform, Trailing stops are semi-automatic. The meaning of the Trailing Stop runs only in software, but not on the server broker. So any change in the position of the Stop will ask for confirmation and the trader first.

However, I highly recommend you use a Trailing Stop. With the nature of forex which can change suddenly, the Trailing Stop is very helpful trader to optimize profits while minimizing losses.