Trailing stop loss forex example

A trailing stop allows a trade to continue to gain in value when the market price moves in a favorable direction, but automatically closes the trade if the market price suddenly moves in an unfavorable direction by a specified distance.

What is Trailing? definition and meaning

Technically, a trailing stop is a loss order that makes use of an automatically-adjusted stop-loss limit instruction to maintain a trigger price. The trigger price dynamically follows the market price in the favorable direction at a specified distance.

In the case of a long position, the trigger price keeps moving up if the market price moves up, but stays unchanged as the price moves down.

In the case of a short position, the trigger price keeps moving down if the market price moves down, but stays unchanged as the price moves up. When the market price moves in a favorable direction up for long positions, down for short positions , the trigger price follows the market price by the stop distance you specified plus the spread.

Trailing-Stop/Stop-Loss Combo Leads To Winning Trades

That is, the trigger price is calculated from the ask price for short market orders or the bid price for long market orders. If the market price moves in the opposite unfavorable direction, the trigger price stays stationary and the distance between this price and the market price becomes smaller.

How to Use a Trailing Stop Loss: 12 Steps (with Pictures)

If the market price reverses itself again and moves back in a favorable direction so it exceeds the maximum stop distance plus the spread, the trigger price will start following it again. If the market price continues to move in an unfavorable direction until it reaches the trigger price, an order is triggered to close the trade.

Metastock formulas atr based trailing stop formula

The fxTrade server closes the trades automatically, whether or not you are signed in. Trailing stops, just like regular stop-loss orders, must be used with caution.

If you use a small stop loss distance, even a relatively slight drop in the exchange rate would trigger your stop loss order. A drop of only 20 or even 50 pips, for example, is really not much of a fluctuation in a typical market, and it is quite likely that this level could be reached in the normal ebb and flow of daily prices. You do not want to set the stop loss at such a small distance that it will be triggered by normal market fluctuations, guaranteeing a loss without any possibility of benefiting from future favorable movements in the market.

The irony with trailing stops is that even though they are designed to protect you from extreme losses, using them carelessly may actually increase your losses.

Use your favorite method to place a limit order or a market order. To use trailing stops with one-click trades, you must set up your default trailing stop values in the user preferences.

In the Limit Order or Market Order window where you place the trade , click one of the Price or PIPS radio buttons to indicate whether you want the trailing stop to be calculated using the base price, or by the number of pips. Click the check box beside Trailing Stop: You cannot set a trailing stop for less than 10 pips or more than pips. This upper limit will be increased for future releases.