Traders know how to use stop losses as part of their forex strategies. It is critical that you implement stop losses as they protect you against large loss levels if your trade goes bad. If you do not set stop losses, you are at risk of losing your entire account balance. Trailing stops are similar to stop losses, but they can make a massive difference to the direction your trades take. It is slightly different to stop losses, but it offers you the same protection as stop losses.
What are Trailing Stops?
Stop losses that move with the market are called trailing stops. If the trend goes upward, that stop loss will follow the trend and move in the same direction. This indicates that the stop loss you have set will remain a set number of pips under your trade amount. In the event that the trend turns and starts going down, your trailing stop will not copy that movement, so it will not move downward. It will remain in exactly the same position until the price reaches that level. This method is able to save you a lot of effort and time.
By implementing trailing stops, you do not have to be concerned about constantly keeping your eye on the market movements and having to change your stop losses. In the event the trend continues in an upward movement, you will bear positive results and you do not have to be concerned if the movements go downward as your stop loss will have moved accordingly.
Trailing Stops in Live Trading
The reason for using trailing stops is to increase your profit level. A secondary function of using trailing stops is to decrease the stress level of trading. Forex trading strategies should work well, but be applicable on a day to day basis. Having to monitor your trades and the market on a consistent basis increases your stress levels. This leaves you wide open to emotional trading and potential burn-out.
Why Use Trailing Stop Forex Strategies?
Although you might now be under the impression that these stops will solve all your problems, you have to be aware that trailing stops are not the solution for all traders. Some traders benefit from using trailing stops, whilst others do not gain from it at all.
The traders who obtain the most benefit are those who use long-term trading methods. This is particularly good for you if you have trades that sit for days or weeks. It protects you in cases when there are sudden market swings. You will be protected with your long term trades as you can enter a trade and leave it to run without worrying too much as your trailing stop will provide you with a profitable trade, but if you go into a loss situation, it will stop your losses at a predetermined point.
This method is not suitable for day traders. Day traders enter short trades that move up and down frequently and this may cause the position to close sooner than it should. In cases where a trade rises then reverses and goes downward, the stop would move and close the trade prematurely. For day traders who wish to use this method, a suitable stop has to be set with careful consideration, taking into account all aspects of their forex strategies.
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