Do you want to expose yourself to unlimited losses when trading forex? Do you want to lose the chances of locking in profits at the best time? If the answer is “No”, then you might need to know what trading stop orders are and how to use them properly in trading forex.
What is trailing stop order?
Have your heard of a stop loss order, trailing stop order have the same function with the stop loss order as they equally provide protection of your capital if the market price begins to move against you when trading forex, but that is where their similarities end. The trailing stop offers more advanced advantages to you because it can move flexibly than a fixed stop loss that can close a trade at a predetermined price level automatically when trading forex. A trailing stop order is a dynamic order in nature for it can close a trade at a progressively better price when trading forex. Let’s make it simple with an example, a trader who is trading the currency pair EUR/USD wants to not only lock in profits when the price moves in favor of him, but also limit losses to a certain degree when the price moves against him when trading forex. In this case, he can totally depend on a trailing stop loss order for it is what the trader exactly wants to use. Then he decides that the trailing stop value is 20 pips. If the market is moving to a favorable direction to the trader, the order will automatically follow the price movements of 20 pips and take profits. But what if the price moves against the traders’ position when trading forex? The trailing stop will not move if the price is moving less than the predetermined 20 pips and in an unfavorable direction. And if the price moves against the position by more than the predetermined trailing stop increment, the position will be automatically closed by the trailing stop when trading forex.
What makes the popularity of trading stop order in forex trading?
A trailing stop order is quite popular among forex traders; this is because of its distinguishing advantages. It is used by a great number of traders in order to lock in the maximized profit they can get and limit the potential risk of losing money when the position goes against them.
1. More flexible
The trailing stop offers a clear advantage in that it is more flexible in nature than a fixed stop loss. It is attractive because it allows the trader to continue protecting his capital if the price drops. But, as soon as the price increases, the trailing stop allows for an eventual protection of profit while still reducing the risk to capital.
2. convenient to use
It is quite convenient to use the trailing stop order when trading forex; this is because traders do not need to monitor the forex market all the time when trading forex. We know that the forex market is open 24 hours but traders need to get some sleep and do other things; they cannot watch it from time to time. Thus, traders can set trailing stop order because it saves the trouble of constant monitor and the trade will adjust itself or stop out when trading forex.