News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
More View more
Real Time News
  • Did you know a Doji candlestick signals market indecision and the potential for a change in direction. What are the top five types of Doji candlesticks? Find out https://t.co/c51s3ISNw2 https://t.co/wuSEjViVHw
  • Gold prices failed to retake the uptrend from the May 2019, March 2020, and March 2021 lows, and are nearing their monthly low. Get your $XAUUSD market update from @CVecchioFX here:https://t.co/qkCdUJFtc2 https://t.co/ldbYm2U0vC
  • The US Dollar continues to push higher against ASEAN currencies after the FOMC rate decision. This leaves the USD/SGD, USD/THB, USD/PHP and USD/IDR outlook mostly tilted higher. Get your market update from @ddubrovskyFX here:https://t.co/zn56iTXcpk https://t.co/NmQzIm39lj
  • Latest update on #Evergrande focusing on the Australian Dollar "Australian Dollar Eyes Evergrande as USD Bondholders Still Await Interest Payments" #AUD $AUDUSD https://www.dailyfx.com/forex/market_alert/2021/09/24/Australian-Dollar-Eyes-Evergrande-as-USD-Bondholders-Still-Await-Interest-Payments.html?CHID=9&QPID=917702&utm_source=Twitter&utm_medium=Dubrovsky&utm_campaign=twr https://t.co/AAU8nMn0ou
  • Do you know how to properly Identify a double top formation? Double tops can enhance technical analysis when trading both forex or stocks, making the pattern highly versatile in nature. Learn more about the double top formation here: https://t.co/t9Flsqcxo9 https://t.co/3bjMHrUZRJ
  • 🇹🇭 Balance of Trade (AUG) Actual: $-1.22B Expected: $0.97B Previous: $0.18B https://www.dailyfx.com/economic-calendar#2021-09-24
  • Heads Up:🇹🇭 Balance of Trade (AUG) due at 03:30 GMT (15min) Actual: $-1.22B Expected: $0.97B Previous: $0.18B https://www.dailyfx.com/economic-calendar#2021-09-24
  • The Spinning Top candlestick pattern forms part of the vast Japanese candlestick repertoire with its own distinct features. Gain a better understanding of the spinning top candlestick here: https://t.co/DWm7cC4v7H https://t.co/uhBNvCTHrW
  • Evergrande USD bondholders say have yet to receive interest due Thursday -BBG
  • The US Dollar seems to be back on the offensive against its major counterparts, pressuring EUR/USD and NZD/USD lower as USD/JPY consolidates. USD/CHF surges past key resistance. Get your market update from @ddubrovskyFX here:https://t.co/MrLGSp7FYa https://t.co/J0vSWHaADc
How Trailing Stops can assist with Trade Management

How Trailing Stops can assist with Trade Management

James Stanley, Senior Strategist

How Trailing Stops can assist with Trade Management

By James Stanley

One of the toughest decisions that a trader faces day in and day out, often-times, isn’t how to enter into positions. Through experience and repetition a trader will usually have a good idea of how they want to enter markets or situations in which they want to trade. The toughest decision that most traders face on a continual basis is ‘When should I exit?’

I want to start by stating that I believe there isn’t one perfect way to exit a trade. Never has been, probably never will be. While we are in a trade, much like before we enter – we have no control over price nor is there any way of predicting what will happen next.

Traders are faced with the age-old conundrum: “Should I risk my gains in an attempt to get more, or should I take the money and run?”

In both scenarios there is opportunity cost. If we leave the position open in an attempt to get additional gains, and the trade reverses against us – well we’ve just given up our profit. If the trader didn’t adjust the stop to breakeven while being up in the trade, the trader very-well may end up taking a loss; allowing a winner to become a loser, which can be a painful psychological experience.

On the other hand, if we decide to take our profit off the table and the position continues moving in our favor – well, we’ve just given up potential profit, which in the case of an extended trend, can be significant.

The question of whether or not to take profits is confounded by the issue that as traders, we will likely never know definitively what will happen next.

One option for combating this conundrum is the ‘Trailing Stop.’ The stop, as many traders know, is a mechanism by which we can manage risk. By placing a stop on the trade, we are drawing our line in the sand, attempting to limit the risk of the position moving against us. Many traders associate stops with losing their trades.

But it doesn’t have to be that way. Stops can close out profitable trades too.

The ‘Trailing Stop,’ is a stop that is adjusted as the trade moves in your favor.

Trailing Stops come in many different shapes, and this can be customized to the traders’ goals in the trade. The below graphic illustrates the mechanism of a trailing stop:

How_Trailing_Stops_can_assist_with_trade_management_body_Picture_1.png, How Trailing Stops can assist with Trade Management

Created with Trading Station 2/Marketscope

As you can see from the above illustration, as the position continues moving in the trader’s favor the stop is continually adjusted higher; locking up additional gain as the stop is progressively moved higher.

If the currency pair retraces beyond the stop value, the trade will be ‘activated,’ and the position closed. The hope of using the trailing stop is that the move will be strong enough to adjust the stop far beyond where I may have initially looked to take profits; allowing me to garner an additional gain.

The trailing stop can be performed manually, by the trader adjusting the stop progressively higher as the trade moves in the money. Alternatively, the trailing stop can be automated on the Trading Station 2 Platform. When setting stops, the box for ‘trailing,’ allows the choice between a ‘Dynamic,’ or ‘Fixed,’ trailing stop.

The Dynamic Trailing stop will adjust the requested stop value higher for each 1/10th of a pip movement in the trades’ direction.

The Fixed Trailing stop will adjust when the pre-determined pip-move takes place. For instance, in the below graphic while opening a market order, I’ve added a ‘Fixed trailing stop,’ of 10 pips, set at 3500 on my short position.

When my short position is 10 pips in the money, the stop of 3500 will be adjusted 10 pips in my favor (3490 would be the next level since this was a short position).

How_Trailing_Stops_can_assist_with_trade_management_body_Picture_4.png, How Trailing Stops can assist with Trade Management

Created with Trading Station 2/Marketscope

Additional resources:

DailyFX PLUS Online Video Course – Money Management Lesson 1

Clarifying the 5% Money Management Rule

In-Trade Management

To contact James Stanley, please email Instructor@DailyFX.Com. You can follow James on Twitter @JStanleyFX.

To join James Stanley’s distribution list, please click here.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES