In contrast to Stop loss and Take profit orders, which only close the position when the price reaches a preset level. Trailing Stop orders automatically adjust according to price trends. This makes the Trailing Stop order a flexible tool and brings many benefits to Traders. So what is a trailing stop? How to use effective trading strategies? What are some things to keep in mind when participating in trading? Let’s explore these questions with Forex Trading below.
Command definition What is a trailing stop?
Trailing Stop is a flexible and effective type of stop loss order. Works by adjusting easily to market trends. When you use this order and your trade is profitable, that interest rate will not be stable. Which will gradually increase over a certain predetermined distance.
This mechanism helps investors preserve most of their trading profits, even when the market reverses. Even when stock or asset prices decrease in the opposite direction than predicted. Trailing Stop still does not move back but remains stable. Gradually convert to static stop loss to ensure the safety of investment capital.
See more: Be more successful through this technical analysis
Types of Trailing Stop orders
In Forex trading, a Trailing Stop order is created based on the smallest value of the score. Depending on each Broker as well as the specific type of asset that the Broker regulates. Below are 2 common types of orders.
BUY – What is a trailing stop?
Buy What is a trailing stop? Trailing Stop BUY is a type of Buy order that can adjust the buy price automatically DOWN. To synchronize with the market’s downtrend. This helps ensure that you buy in at the best possible price.
- When the market decreases, the trigger price will also decrease by a certain amount, calculated by the price slippage margin. When the market bottoms, the trigger price does not change. When the market increases, the trigger price does not change.
- When the market price reaches or exceeds the trigger price, the buy order will be executed at the purchase price. Calculated by adding the price range to the market price at the time of activation.
SELL – What is a trailing stop?
Sell What is a trailing stop? Trailing Stop SELL is a type of Sell order. The selling price is automatically adjusted according to the increasing trend of the market. This helps ensure that you sell for the best price when the market peaks.
- When the market increases, the order’s activation price also increases. But when the market falls, the trigger price does not change.
- If the market price falls to a level below or equal to the trigger price. The sell order will be executed at a price calculated according to a specific formula.
Detailed instructions on how to place a Trailing Stop Order?
Similar to the Pivot point, the Trailing Stop order allows setting a trailing stop order immediately upon opening a position. Or apply a trailing stop order to reduce or close an open position.
For Purchases
To place a trailing stop order to sell, the order trigger price must be higher than the purchase price. The trailing stop price will increase by a certain percentage. When the price increases, the trailing stop price will be updated.
When the price decreases, the order will be adjusted to stop. If the price fluctuates more than the specified return rate along with the highest price and reaches the stop tracking price. A sell order will be activated to close the position at the market price.
For Sales Transactions
To place a trailing stop order to buy, the order trigger price must be lower than the asking price. The price to stop tracking will decrease by a certain percentage.
When the price drops, the trailing stop price will be updated. If the price increases sharply, a buy order will be triggered if the price fluctuates more than the specified return rate. Along with the lowest price and reaching the trailing stop price.
Note: Players need to ensure that both necessary conditions have been met. Minimum trigger price and specified payback rate to trigger a trailing stop order.
Trading strategy that effectively uses the Trailing Stop order
Trading strategies that effectively use What is a trailing stop order? Trailing Stop offers many advantages and attractive features for traders. Below are some guidelines to help you make these transactions most effectively.
Use Trailing Stop to the extent that you can tolerate the risks in What is a trailing stop?
Players need to define the acceptable level of risk (R) and set corresponding trailing stop points as 1R, 2R…nR. To apply the Trailing Stop strategy easily.
In case the market is volatile and fluctuates strongly, it is reasonable to consider placing a trailing stop of 2R or more. If the market is less volatile and has little impact on trading, you can set a trailing stop at the breakeven level of 1R. This helps optimize capital and gain maximum profits before the market turns to a strong downtrend.
Use Trailing Stop at the support and resistance zone
An effective and optimal way to use Trailing Stop that traders should not ignore is to set up orders at support and resistance levels. This allows players to rely on support and resistance levels. To identify tops and bottoms in the same trend. In case you encounter difficulties in determining the top and bottom points. You can place a Trailing Stop order according to the price at support and resistance levels.
Trading strategies using Trailing Stop at an above-average level
This method is when Traders set a Trailing Stop order that moves along a moving average. Commonly known as MA20 or SMA20. Players can flexibly adjust the moving average. Depending on their investment goals, it can be short-term or long-term.
Using the PSAR signal in What is a trailing stop?
This is a very effective and basic strategy for every player. You can use PSAR to place a Trailing Stop order. When you see the candlestick chart nearly reaching the Parabolic SAR dot, place a Trailing Stop order at the nearest PSAR level. This is a signal that the price trend is about to reverse and you can profit at the highest level.
Set at level X – reversal candlestick patterns
What is the strategy for using 3 trees for what is technical analysis? You can apply many different signals based on your goals and order conditions. Can be long-term or short-term, to place orders most smartly.
For example, if you do technical analysis using 3 candles and want to open a short-term position, pay attention to placing the order at the highest point of the 3 candles. On the contrary, if you want to open a long-term position, focus on placing the order at the lowest point of 3 candles.
Trading strategy places Trailing Stop order at Bar plus level
Like the previous strategy, using this Trailing Stop order is also based on the previous candle. However, you will apply to new candles. Place a Trailing Stop order at the highest high of the new candle and add a few pips. This number of pips depends on the percentage of the ATP indicator. For example, if ATP is 60 pips, you would add 30 pips, which is 50% of ATP.
See more: Optimize trading with IC Markets Exchange
A few notes when using trailing stop-trading strategies
Note when using What is a trailing stop? As analyzed previously, you should not rely too much on the Trailing Stop order because although it is flexible, it is still influenced by the user. Instead, you need to evaluate the information meticulously. Compared to static orders such as Stop Loss or Take Profit, using Trailing Stop requires using the MT4 software and is not allowed to turn off the computer.
When shutting down the MT4 or MT5 software, the Trailing Stop will stop working and will only resume when reopened. To keep orders active when the computer is turned off, it is necessary to use a standalone VPS. Another important thing, each Trailing Stop order is processed only once. Therefore, when executing multiple commands at the same time, only the last command will be executed, the rest will pause until the previous command is completed. This needs to be remembered to avoid risks and confusion.
Conclude
Trailing Stop is a powerful tool that helps investors optimize profits. Forex Trading hopes that through this article, you have a better understanding of What is a trailing stop and how to apply it in trading. Remember, mastering trading tools and strategies will help you achieve success and maximize profits in the financial markets. Wishing you success and effective trading!
Frequently asked questions
Trailing Stop – how does it work?
When the price of the asset moves in the direction of profit, the Trailing Stop price will also move and maintain a certain distance from the current price.
What are the advantages of Trailing Stop?
Trailing Stop helps protect achieved profits by automatically adjusting the stop loss price according to price movements, and helps optimize profits by allowing prices to follow the profit trend.
How to set distance for Trailing Stop?
The distance for a Trailing Stop is usually set based on market volatility and the trader’s profit target, typically determined as a percentage of the current price or number of pips.
