What Is Trailing Stop in Forex Trading?
A trailing stop is a stop order which automatically moves to market price movement. It allows traders to dynamically move their stop losses and lock profits in their profit.
For example, let’s say you want to trade EURUSD. You’ve set a trailing stop of 50 pips that’ll be triggered if the market moves against you.
You can continue to gain if the EURUSD market price moves in your favor. But it’ll automatically stop if the price doesn’t go against you by 50 pips.
How to Setup Trailing Stop in MT4?
It’s very easy to set up a trailing stop on your mt4. Just right-click on an open position and select the trailing stop option from the pop-up menu. You can select a preset trailing stop or enter your own trailing stop.
Why Should You Use Trailing Stop?
There are many advantages of using trailing stop.
- Trailing stop protects your capital and helps you lock in more profit.
- It automatically moves according to the market direction so you don’t have to reset stop loss.
- You don’t have to watch the market constantly when you set a trailing stop.
Disadvantages of Trailing Stop
There are some disadvantages to consider before you use it.
- When you set up trailing stop in a volatile currency pair, it may trigger frequently.
- Trailing stop only works in MT4.
- It is not ideal for trading strategies such as trend following methods.
If you’re thinking about whether you should use trailing stop, it ultimately depends on your trading style. Trailing stop can be a great tool for you to lock profit without watching the market every second.