Trailingstop

What is the trailingstop? WHAT is it used for in trading and When do I need it to trade?

Hi, Revnath and welcome to the forum. You could find this thread for trailing stops quite useful: 301 Moved Permanently

A sell trailing stop order sets the stop loss at a fixed amount below the market price. As the market price rises, the stop level rises by the trail amount, but if the stock price falls, the stop loss price doesn’t change, and a market order is submitted when the stop price is hit.

If your TA is good and your position correctly sized, I would advise don’t use a trailing stop. It is effectively a randomised exit at a point where for all you know price is more likely to move in your favour than against you, so it would be more profitable to remain in the trade.

hello revnath,
trailing stop is a method which helps you to lock profits while at the same time the market moves in your favor (winning position(s)). By placing a trailing stop at a certain level (e.g. 5 pips), once your trade(s) will gain 5 pips as profits, automatically (at the mt4) a stop loss will be placed 5 pips away from market price.
-If the market moves at your favor, the stop loss will be renewed/updated constantly (due to the trailing stop) locking this way more profits.
-If the market moves against you, then the order will close at the stop loss (placed by the trailing stop).

Note that the trailing stop will be activated (that means stop loss will be activated), only if your trade(s) will reach the pip limit of the trailing stop placed - profits reached as per the pip limit.

I completely agree.

I’d strongly advise you to avoid automated trailing stops in your trading, without conclusive proof that you genuinely benefit from them (which is unlikely).

My own opinion is that in general, for most systems, most of the time, trailing stops lose money. I have several different reasons for believing this.

First, when I tested my own five little systems, only one of them gained (a fraction) from a trailing stop: the others all lost.

Secondly, when I’ve occasionally made this comment, I’ve always had some “Good heavens - you’re right!” comments from people who have methodically backtested it for the first time and realised that their trading was actually more profitable without the trailing stop than with it.

Thirdly, all the authors whose textbooks I really respect and whose opinions have proven right and beneficial to me in other areas seem fairly opposed to trailing stops.

They always [B]look[/B] and sound attractive and appealing, but [I]it’s very easy to lose count of the times a trade starts off doing well and then retraces a bit (just enough to take out the trailing stop, which has of course moved during the initial phase of the trade), before continuing on its merry way in the “right direction”[/I]. So the times that trailing stops cost money tend to be “opportunity cost” money, i.e. you make less than you might have done, i.e. they’re profitable trades anyway (often) which is why one doesn’t always “notice” as much as one would if one were looking at actual losses.

I believe that for most traders, most of the time, trailing a SL manually just above/below the most recently formed swings high/low is [U]very[/U] significantly likely to be a better approach. [B][U]Key concept[/U][/B]: this approach is related to the volatility [I]as the trade progresses[/I], not just to the volatility at the time of the entry. And that’s why it tends to be so much better.

For myself, I’m not willing to use automated trailing stops in the absence of [B]really[/B] clear-cut and statistically valid proof that they’re better than other methods. That kind of proof is hard to come by - and there are reasons for that. :wink:

Trailing Stops… good… and bad. Your TA can be perfect, you even traded the correct market direction… but all of a sudden…

The Good… If you are going to be away from the screen for long periods of time they are useful in ensuring that your stop is moving with the price in the correct direction and lowering your exposure to the market. If the trade moves against you a trailing stop is irrelevant. The real skill is setting the trailing stop gap so as to give the price a chance to oscillate up and down within current volatility (breathe) without hitting the stop.

The Bad… In a positive trade you are effectively moving the stop away from the support/resistance zone giving it a better than average chance of being triggered earlier in a small retracement. This will either end your trade with a decreased loss :slight_smile: or a minimal profit :frowning: on what could have been a more profitable trade.

I have my first BE stop placed automatically by my software and hidden form the market until activated by the price…

eg: I open a trade with a 50 pip TP, If my trade reaches 35 pips, my stop will be automatically placed at 20 pips, hopefully far enough away not to be hit with a small retracement. When the trade moves to 45 pips, I then manually move the stop to 35 pips locking in more profit which is the same logic to applying a trailing stop.

I will have a mental stop level upon entry should the trade go against me… another reason I don’t place a stop on entry to a trade is it doesn’t give the market something to aim at…

Disclaimer: Post may contain trust issues in the retail FX market… [I]Stay skeptical… remain profitable[/I]

Ya I do use TS sometimes. Expecally when I b away from the screen. My TS can only b activated min 5pips. When hit 10pips it trigger if I do the setting. At list can protect my profit when I’m away. But seldom use.