How to Use a Trailing Stop Loss for a Profitable Trading

Do you want to know more about forex orders and what is a trailing stop loss? Watch our latest video to find out how to use a trailing stop loss in your everyday trading.

How to use a trailing stop loss – A simple but effective guide

One of the most common ways to protect yourself in the marketplace is to have a stop loss on each trade. This of course is something that you should always do, as we have to protect our trading capital first and foremost, as it is without a doubt the most important thing when it comes to becoming profitable. This of course is basic knowledge, but there is an alternative to placing a hard stop loss, as many people use trailing stop losses.

Trailing stop losses function initially like a normal stop loss, meaning that once a certain price gets hit, the broker knows that it is to take you out of the market out of the best price possible. This minimizes losses, and protects the trader from sudden moves. However, the trailing stop loss allows you to dynamically change the level of the stop loss as the trade progresses. In a nutshell, what the trailing stop does is follow the movement of the actual trade.

An example would be if you have a 30-point stop loss, and the market falls below that level, we will be taken out of the market. However, as we continue to grind higher, the stop loss moves up with the gains of the trade. In other words, if the market rises 50 points, the stop loss moves up 50 points, offering a stop loss at a gain of 20 pips. However, when markets pullback, the stop loss sits still. In other words, it is very similar to an object on a string, as it needs to be taught in order to be moved. That’s very similar to how the stop loss works.

A market that rises in an uptrend for example could be used to place a trailing stop loss in, and at the end of the day you can continue to lock in profits or at least minimize losses over the longer term.