[Disclosure: this question has been asked on this forum in the past. However, I felt the responses I could find didn’t quite answer the question, as they tended to discuss the efficacy/usefulness of trailing stops, rather than the functionality.]
Is there a tool like a trailing stop which takes effect as soon as a position is opened (rather than after a certain level of profit is reached)? For example, if shorting EUR/USD at 1.17800 with a stop loss at 1.18000 (20 pips), then a price movement to 1.17799 would cause the stop loss to move to 1.17999.
The way the trailing stop usually operates seems very strange to me. You can end up with big discontinuities in the S/L level. Consider the position above with a 20-pip trailing stop:
Price drops to 1.17610. As the position is currently 19 pips in profit, the trailing stop does not take effect and so the S/L remains at the initial 1.18000. A sudden reversal in price can thus potentially cause a 39-pip loss.
Price drops to 1.17590. As the position is currently 21 pips in profit, the trailing stop takes effect, bringing the S/L to 1.17790. A sudden reversal in price can now result in only a 20-pip loss
In this situation, a mere 2 pips’ worth of movement causes the stop loss to jump by 21 pips. I would much rather utilise a tool without this kind of massive jump. Of course, manually adjusting the stop loss can achieve this (and this is what I have been doing thus far), but surely the point of a trailing stop is to guard against a sudden price reversal when you can’t be at your computer?
Thanks for trying to help out, but I am aware of how the trailing stop functions and I always stay logged in when using it.
My problem is that, for example, a 10-pip trailing stop does not activate until your trade is 10 pips in profit. I’m looking for something that trails price as soon as the position is opened.
Not by default. It’s not a common request, because moving your stop before your trade is in profit could increase your chances of being stopped out. You might end up with smaller losing trades, but you might not have enough winning trades to offset them.
Trailing stops are typically used to take advantage of long term trends when you are already in a profitable position but do not want to limit your trade with a specific profit target.
My motivation is more for situations where there is a sudden reversal in price, where your stop loss will be triggered regardless (such as the example I gave above, where just 2 pips of additional movement meant the difference between a 39-pip loss and a 20-pip loss). Also, as I explained earlier, “in profit” is not the trigger for a trailing stop to be applied - your trade could be in profit and the trailing stop may still not take effect.
Regarding being stopped-out of a correct trade; I feel (as with any stop loss), that this is a risk that must be considered. The skill in placing a stop loss is to determine how to protect against adverse movement while minimising the risk of being stopped out of a good position. I’m not sure why one would consider a trailing stop to be any different.
One key difference is that when you set a fixed stop loss, you can set the price to be below a key support level or above a key resistance level in the market. By contrast, with a trailing stop order, your stop price could move to be above a key support level or below a key resistance level, increasing the chances it will be hit regardless of your skill. This is why trailing stops tend to be reserved for longer term, trend trades, once you are already in a profitable position.
On a shorter term trade, or one that is not yet in profit, a stop price set below the support level, rather than above it, might be more desirable, even if it means risking more pips, because it allows you to see if the support will hold, sudden reversal or not.
That is a fair point. I was mistaken to equate the two so simply.
However, that still doesn’t resolve the issue of the trailing stop triggering at X pips past the entry the level (unless the entry is itself a resistance level). If you’re X-0.1 pips in profit, you can make a loss up to your initial S/L, whereas at X+0.1 pips you make at least 0.1 pips of profit. This minute difference of 0.2 pips (which will make absolutely no difference to whether or not you get stopped out) can alter your stop loss enormously.
To start, read the very first thing I wrote. I’d tried to pre-empt unhelpful responses which merely address the use of trailing stops instead of my actual question (FOREX.COM did discuss the trailing stop, but tried to help me out first).
Secondly, I take up short-term intraday positions. Looking through your posts, I see you use daily charts and so would have little use for a trailing stop. However, they are useful for me as it is not uncommon for volatile pairs to make large movements and rebound within the space of a few hours. If I’m away from my computer (and thus unable to manually move the stop) I could easily leave 40+ pips per day on the table.
I think it’s thoroughly disrespectful for you describe the use of trailing stops as ‘fear-based’ simply because you don’t have a need to use them. It’s an obnoxious “my way is objectively correct” viewpoint.
My opinion has nothing to do with what I do or not. There are many other aspects of Forex that I do not use that have their benefits. I just dont think Trailing Stops are one of them…especially one that jumps massively to protect your trades and my opinion is that you shouldnt be using ANY type of Trailing Stop in the first place because it stifles your profit potential out of fear of sudden reversals.
The market naturally waves and pulls back before your targets are hit. So locking in 20 Pips when the market moves in yiur favour could prevent yiu from earning 30 more Pips by not wanting the market to pullback and then Uturn to hit yiur targets.
Is it that you wanted only responses that gave you what you want and no differences of opinion? Is that what you mean by “helpful”? Only opinions that agree/support you? Maybe those previous responses were a hint!
It does. In longer term trades, you need to absorb oscillations because you’re trading trends. I tend to make my profits off the daily oscillations themselves. To avoid every day being break-even, I need to close out my positions before price reverses completely. Most of the time, I adjust manually and do not use a trailing stop. However, when I’m unable to be at my computer, the trailing stop is the next best alternative.
If you’d read my previous posts, you’d know that this is exactly my problem with the trailing stop as it is (and the point of this thread).
Read the first post again. I didn’t want opinions at all - I merely wanted to know if a tool exists in MT4 as I described.