In the process of trading on the Forex market, it is extremely important to use tools that help regulate not only losses, but also profits. The most common tools are considered stop loss and take profit. No less significant and useful helpers in trading currency pairs are trailing stops. With the help of a universal program, any trader can easily squeeze the maximum amount of profit out of the market, remaining in it for as long as the situation and an open transaction allow. So what is a trailing stop (Forex)?
Get to know the trailing stop
The expression “trailing stops” is literally translated from English as “relocated stop”. In other words, they represent an order to the broker, according to which the stop loss will move behind the price of the currency instrument in the previously indicated direction. The main purpose of the tool is to facilitate the manual trading of the trader and allow you to develop a strategy with minimal loss values. Using trailing stops, it is possible to keep the profit that the market allows to make.
Why does a trader need trailing?
The main task of trailing is the implementation of a slow and consistent stop loss order in the direction of price movement at a distance indicated by the trader. A flexible loss limiter and at the same time a profit lock is designed to competently support open positions, to achieve a high level of professionalism in trade.
How does a trailing stop work?
Trailing, which is one of the modifications of stop loss, is already integrated into the trading platform. There is no need to search the advisor on the Internet and install it in the terminal. Everything has already been thought out by the developers of the platform. To activate the tool, it is enough to carry out a series of manipulations on the terminal:
- open a position or place a pending order ;
- right-click on the “line” of the order, a window will open;
- from the opened window, select the desired function;
- assign a certain value to the trawl in points.
As soon as the price of a currency pair goes into plus a distance equal to the parameters of the trailing, the tool will transfer the stop to the level without losses. The movement of the floating limiter will continue until the price reverses or rolls back to a distance exceeding the parameter specified in points when setting up the instrument.
What standard parameters of the tool do brokers offer?
Each broker has its own trading conditions and instruments. If we consider specifically trailing stops, you can notice a significant difference in the settings. Most brokers offer a gold standard. Most often, the minimum trailing parameter is 15 points. Depending on the manner of trading, you can set the indicator to 50 points, but no more. The settings offered by brokers are limited to a small range in which the trailing stop will be moved.
How to set the instrument in the correct format, suggests each individual currency pair. Tool parameters should be adapted to the volatility of currencies. For example, for the price movement of exotic pairs, such as “Canadian”, “Australian” and “New Zealander”, only 25 points are enough. Euro and dollar require at least 35 points with measured movement and in the absence of economic news. As for the franc, then you need to set the parameter at the level of 50 points. If you do not compare the activity of currency pairs and the parameters of the instrument, it will not bring benefits. Most likely, the stop order will be hit by a price spike, and then it will go in the priority direction.
How does the market affect trailing performance?
Each trading tool of a trader requires in-depth study, including a trailing stop. "Forex" is multifaceted, the movement of currency pairs on it is not logical. In order for the tools to be profitable, it is necessary to understand the subtleties of their application. Their effectiveness depends on how much the trader is guided in the wave nature of the market. As the long-standing practice of trading in currency pairs has shown, each financial instrument has its own movement power.
- USD / EUR - the speed of the pair within an hour can reach up to 60 points. This is a high indicator of volatility, which dictates the installation of a trailing stop at a level of at least 35 points.
- USD / CHF - a good trail for the pair, at least 45 points.
- USD / CAD, NZD / USD - due to the calm movements of the pairs, the trail indicator is at least 30 points.
- AUD / USD - 25 pips.
- GBR / USD - effective earnings are available if the trail is not lower than 45 points.
Trying to remove the maximum profit from the market, do not neglect the indicators indicated above. A fixed number of points is the size of the pullback that each pair gives during a targeted movement. If, in an attempt to save money, set a minimum trailing stop, it will be knocked out and a small amount will be removed from the currency market. The effectiveness of the tool depends only on the ability to use it.
When to activate the trawl?
In order for the tool to make a profit, you need to carefully study it. This also applies to the built-in functionality of such a tool as trailing stop. How to set the parameters correctly, we will understand below. The trading result will depend on the time of activation of the instrument. It is not necessary to activate the profit regulator immediately, with the exception of situations when news release affects the market. Each trader estimates the profit and loss for each transaction, and it happens that the active movement of the price indicates that the fall or growth of a certain pair will continue until some certain point outside the level. At the profit itself, the limiter is removed, and the trawl enters the game. Thus, he will fix the profit until the price turns around. Sitting at a computer monitor is not necessary. As the price of the currency pair changes, the “trawl bar” will also be tightened, which will provide the trader with good profit.
Trailing Stop in News Trading
In short-term trading on the news, a trailing stop can become an indispensable tool. What is this, we examined earlier, and now we will figure out how to use it in this situation. Trading will be conducted on pending mirrored orders with pre-set stop loss, but without take profit. The rules of trading on the news is a separate issue, they have a clear outline, but the essence of using the trawl does not change. He takes the place of honor. It is impossible to predict in advance how far the price will go and go. It can be 100, and 200, and 500 points. In the history of the market, there has recently been a situation that after changing the interest rate, the CHF / USD pair made a jump of 33 thousand points at 4 digits. This is a global movement that could bring profits uncharacteristic of daily trading. The conclusion is quite obvious. A floating profit lock in this particular case could help increase capital by several times.
Unique Advisor Trailingator
The upgraded version of the integrated trawl in the trading platform is a trailing stop advisor. It aims to reduce the manual labor of each trader. The trawl is carried out automatically. The main advantage of the adviser is that, in comparison with the built-in version, it activates itself. All that is required of the trader is to establish a clear distance in points, after passing through which the currency pair automatically activates the instrument. This is due to the fact that every professional speculator understands perfectly well that it is simply illogical to trawl a deal until it passes for less than 50 points. Kickbacks and jumps will bring down the order, not giving the opportunity to earn. Only a long practice allows you to understand what a trailing stop is. Forex itself is very unpredictable, and its study, in fact, like all available tools, is a lengthy process, complemented by persistent practice.
What are the disadvantages of using a trawl?
Trawl, like the adviser for a trailing stop, has its drawbacks. Their quantity and quality will depend solely on which trading system is used by the trader and how flexible it is. It is worth noting that the trawl is very effective only with strong trend trading. When the market is in flat, use this tool is not worth it. Price movements during stagnation are very unstable and short-term. Accurately predicting them is very problematic. Without a targeted movement, even at the best point of entry into the market, it will be very difficult to take the minimum profit.
Agree, the exchange rate does not always move unidirectionally, so that the trailing stop order smoothly follows the price. There are cases of wide-format flat when the trawl will constantly shoot down, and the trader will not take profits even at the best entry point. A floating stop cannot be the basis of a trading system. It can serve as a universal supplement, which in certain situations should be used, and in others - categorically avoided.