Home - Blog - Forex – Trailing Stop and How it Works

Forex – Trailing Stop and How it Works

So what do you do if you want to set a trade but don’t want to sit and watch it in order to close out a profitable trade, however, you want to maximize the profit as much as possible, especially in a strong trend move?

Ordinarily you should always set TP (take profit) and SL (stop loss) on any trade you have open; here at My Own Forex Guru we use between 2-5% as max risk for all open trades. That means if all of our open trades goes against us at the same time and we had $100 in our account, then we would only lose $5 at the worst; however, we are always taking trades when we believe we can profit and our profit return is always set to at least 2:1.

That means if we set our SL to 50 pips, then our profit factor should be at least 100 pips (2:1), the minimum you should seek to gain on a trade (otherwise don’t take it) is 1:1, meaning, if you set 50 pips as SL then the TP needs to be at least 50 pips, that’s a 1:1 ratio.

So what if you take a trade and you set the initial SL to 50 pips but you want to maximize your trade, you can then use trailing stop loss (TSL). Trailing stop loss works by defining how many pips the SL should move once you hit a certain amount of pips in profit.

So let’s say you set your TSL to 50 pips, that means, as soon as your trade moves 50  pips into profit, the SL will move 50 pips with you. So if you are 100 pips in profit, your TSL will trail 50 pips and move each time you make another 50 pips in profit. However, it will not move once it has moved when the trade goes against you.

Additionally, if you are using MT4 then you need to leave MT4 turned on so that the TSL will work, if you shut it down then it wont work, if that worries you, look into having your MT4 on a VPS (hosted in the cloud and it will always be on).

If you have any more questions around trailing stop loss, reach out to us and we will help you.

About Chris

Chris Wittusen started trading in early 90's, mainly in stocks but is now mainly trading in Forex (currency trading). He also manage a successful Forex group on Facebook, where he shares his knowledge to other people that want to learn more about how to trade in Forex. His technique still applies to both Forex and Stocks due to his style of naked chart trading along with box trading.
Loading Facebook Comments ...

Leave a Reply