The trailing stop is a unique way to maximize the profitability of our forex trading strategy. It enables us to dynamically follow a trend in the market and allows traders to let their winning trades run, which is absolutely important for a successful strategy. It also gives us time to rapidly cut potential losses or to lock our profitable trades at certain levels of profit.
Normally, the trailing stop should be inserted just after our trade has reached a break-even level, because the main aim of this function is to lock the profit after it moves along with the stop loss.
How Does it Work?
Let’s assume that we want to execute a buy order on EURUSD at 1.6000 and set up the trailing stop at 25 pips. When EURUSD has reached 1.6050 and we gain 50 pips, the trailing stop will automatically move our Stop Loss to 1.6025, locking in our profit to at least 25 pips in the case that the position moves against us. If the trade keeps going up to a price of 1.6075, again the stop loss will be moved automatically to 1.6050 and so on.
Trailing Stop on MT4
On the MT4 platform, the function of trailing stop is available. In order to activate the function, we just need to right-click on our specific trade on the Trade Terminal window and select the amount of pips that we want to trigger the trailing stop for. If we want to select 25 pips, we need to click on Custom and manually digit 250 (points). This is because the platform considers the 5th digit of the price after the dot as a point, so 25 pips would become 250 points.
The trailing stop requires the MT4 platform to be open in order to work properly. This is because the trailing stop only works on the trader MT4 software. So, in order to use this function, we need to keep our PC on and the Metatrader 4 open. If MT4 is closed, the trailing stop wouldn’t work anymore.
When to Use The Trailing Stop
The trailing stop should be used only in certain market conditions. For example, it’s not recommended to be used in choppy markets and instead would be very usefully in certain trendy market conditions. Also, it’s never recommended unless we operate scalping to set the trailing stop too tight. We must always leave a bit of margin and room for the market to move.
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