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What is a Trailing Stop?

A Trailing Stop is a very useful tool to maximize the performance or profits of our operations when the market moves in our favor, and puts a stop that fits the needs to get the most out of each order. It allows us to follow in a dynamic way of the market, doing what is fundamental in trading: let the profits run. At the same time it reduces the possibility of suffering a loss of the whole operation. Generally a Trailing Stop is configured as soon as you put the operation to Break Even, that is to say, at the moment the strategy you are applying indicates that you have reached a profit, and can place the Stop Loss at the entry level, so that from that from now on we will only benefit. A Trailing Stop progresses as the price advances, always maintaining the distance you have set. It will stop when the price goes against our operation.

How the Trailing Stop works in an operation

Assuming you opened a purchase order in the EUR / USD to 1.2056 and you have your Stop Loss to 1.2006 (i.e. a stop of 50 pips. If you use Trailing Stop, which many operators can configure in each market order. You could, for example configure a Trailing Stop of 30 pips).

This Trailing Stop would work as follows:

If the market moved 30 pips in your favor to 1.2086, for example, our stop would move up 30 pips, and the order would maintain the original distance of our Stop Loss (for example 50 pips) from the current price. This way if the market declined, our stop would be higher than in the beginning, which would not result in losing what we already have, or the loss would be minimal. A Trailing Stop strategy is very useful for securing your earnings in a certain position when the market has moved in your favor.

A Trailing Stop (or stop tracking) allows you to automatically protect the benefits of your positions. It is adjusted according to the current market price and the number of pips you are given. It is a great tool for conservative and long-term traders as it easily creates a protective mattress for operations. There are two basic ways to set the Trailing Stop on your MetaTrader 4 platform: use the built-in tool or attach a special EA that will apply a single trailing-stop to all orders. It should only take action when the position is in profit (or break-even).

When to use the Trailing Stop

It is advisable to use a Trailing Stop in trend situations. When the market moves in a defined direction, there is a good chance that it will follow the price march. In these situations, the eventual setbacks will not reach the level of mobile stop that you have set up and will give us the possibility of letting the profits run. When the trend reverses the direction, the stop loss will stop, closing the position at the moment the price reaches that stop level. It is essential, therefore, not to be excessively “stingy” when establishing the distance between price levels and stop. The price fluctuates so setting a Trailing Stop too small can produce the undesirable effect of being expelled from the market prematurely.

How to configure the Trailing Stop in MetaTrader4

When you have an open operation, it indicates the values ​​in the Terminal Zone in the tab of Operations. See image below:

Clicking the right mouse button on the operation that you want to modify will open a menu with several options, including “Trailing Stop.” Clicking on this option will open the different options of points that you want to put in your Trailing Stop, as you can see in the image below:

In the previous box you can see the option where you can choose the number of points you will put in your Trailing Stop or you can customize the amount of points.

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Jose Pino
Business Development Manager – Tradeview

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