The Trailing Stop is a unique way to maximize the profitability of our forex trading strategy. It enables us to follow dynamically a trend in the market, and allow traders to let run their winning trades, which is an absolute important key for a successful strategy. It also enables us to rapidly cut potential losses and to lock up our profitable trades on certain levels of profit.
Normally the trailing stop should be inserted just after our trade has reached a break-even level, because the main aim of this function is to lock up profits gradually, the stop loss moving automatically as the profit level grows.
How does it Work?
Let’s assume we execute a buy order on EURUSD at 1.6000 with a trailing stop set up at 25 pips. When EURUSD has reached 1.6050 and we are gaining 50 pips, the trailing stop will automatically move our Stop Loss to 1.6025, locking in this way our profit to at least 25 pips if the position moves against us. If the trade keeps going up to a price of 1.6075, again the stop loss will be moved automatically to 1.6050 and so on.
Trailing Stop on the MT4
The trailing stop is available on our MT4 platform. In order to activate it, we just need to right-click on the specific trade in the Trade Terminal window and select the number of pips we want to trigger it. If we want to select 25 pips, for example, we need to click on Custom and manually enter digits 250 (points). This is because the platform considers as points the 5th digit of the price after the dot. So 25 pips become 250 points.
The Trailing Stop function requires the MT4 platform to open in order to work properly. This is because the trailing stop works on the trader MT4 software only. So in order to use this function, we need to keep in mind to keep our PC on and the MT4 open. If the MT4 is closed the trailing stop would no longer work.
When to use the Trailing Stop
The trailing stop is recommended to be used only in certain market conditions. For example, it is not recommended in choppy markets and is instead very useful in certain trendy market conditions. Also, it isn’t recommended to set the trailing stop too tight and you should always leave a bit of margin and room for the market to move.
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