Using trailing stops is one of the best techniques that an active trader can do to increase their profits. This trading method will allow you to reap profits will also protecting you from taking losses. This is very important as trades can turn quickly and what once was a winning trade can quickly turn into a loss if it is not managed properly. A trailing stop loss will eliminate this and allow you to leave trades open and let your profits run while simultaneously protecting you from taking a loss.
What is a trailing stop loss?
A trailing stop loss is a technique in which your stop is moved up as your trade moves into profit thereby locking in profits and eliminating the possibility of loss. This is extremely beneficial to traders because once a trade reaches this point the traders knows no matter what they will profit on the trade. The trader can then let the trade run and continue to make profits for them while also being protected from losses. This means unlimited profit potential with no chance of taking a loss. What more can a trader ask for?
How to use a trailing stop loss
If you want to implement trailing stops in your trading then its a simple as selecting it when you open a trade with your software. Most trading software gives you the ability to set stop orders that will automatically trail as your position moves deeper into profit. If you are unsure how to do this then you should consult the manual for your software or contact your broker for assistance. If for some reason your software doesn’t offer this capability built in then you can still manually trail your stop orders.
All you have to do is define the point at which you will move your stop order and also the increments in which you will move it. For example let’s say you are day trading the Eur/Usd in the forex market and your initial stop order is 20 pips away from your entry point, you could choose to move your stop order up another 20 pips for every 20 pips you move into profit. So once your position is 20 pips in profit you would move your stop order to break even and then when you reach 40 pips of profit you would lock in 20 pips of profit and so on and so forth. This is just an example as there are unlimited ways to trail your stops. How you choose to do should be based on your style of trading and risk tolerance.
A trailing stop loss provides traders with a great way to limit and even eliminate their losses while also keeping profit potential unlimited. This is a great method that is sure to help your trading once you find a way to implement it that suits your trading style. As with all new methods you should first test it out in a demo account until you figure out exactly how you want to implement it into your trading plan.
