Guys, am a little bit confused on trailing stop can someone take me through from the scratch??
1 Like
Its a simple idea. Let’s say you bought at a certain price and the chart has now gone up, so you are showing some nice gains on your position. But you want your position to be closed if price drops back 50 pips or whatever, so that some of your profit is protected, you set a TSL 50 pips below your entry price. If price rises, it drags the TSL higher so that the maximum loss if price drops will always be 50 pips. Obviously if price only drops 49 pips, your stop-loss will not be triggered.
The difficult parts of the TSL are deciding when to use it and deciding how far from entry it should be.
1 Like
The problem with trailing stops is that they add another stop to your position. If you’re long, and the market moves against you, then you’ll need to put on a trailing stop to protect your profits.
The problem with this is that you might decide not to do so, because your position is already too big. Theoretically, this should work out just fine, but in practice it doesn’t. The reason is simple: few traders have the discipline or the self-control to avoid moving their positions when they’re ahead.
That’s why we prefer to use proper stops and take profits instead of trailing stops.
Its true - a trailing stop can actually kill a profitable position before it has reached its full potential.
1 Like
Your Trailing Stop limit may be activated by typical market movement if it is set too closely to the current price, which could result in no gains. You also run the risk of suffering needless big losses if it’s too wide.
Say you rob a bank and get away with 10000 dollars.
Now you start running, and every 50 meters you give 50 dollars to a friend whos waiting for you.
If you reach home, you Will get your 10000 dollars from your Friends.
Say while you are running, a police starts chasing you… if you run 500 meters, your Friends have 500 dollars…
If the police catch you… they Will keep the rest of the money and send you home.
Police is the trailing stop
2 Likes
Babypips article on trailing stop has explained it well. You can refer to it and practise in a demo account till you are better in identifying and exercising trades on trailing stops.