One of the recurring issues I see with new traders is their difficulty with exiting open positions. This is unfortunate as knowing when to exit a trade is vital for any trading plan, and is often what separates new traders from professionals in the Forex trading world. With this in mind, today we will examine how to effectively manage an open position using a trailing stop.
First, it is important to know that a fixed trailing stop is an advanced entry order designed to move a stop forward a specificed amount of pips after a position has moved in your favor.
Traditionaly fixed trailing stops are used in conjuncture with a trending market strategy, to lock in profits on an extended move. To initially contain our risk there is a stop of pips being placed at Since our trail is set to this means that if our trade moves pips in our favor our stop will update that same amount. In this example this means our first trail would update our stop to From here the trailing stop will continue to lock in profit every time the trade moves in our favor the selected amount.
It is important to remember that the trailing stop by design is designated to close our trade. At any point in time a trade may move against our position and close the position at the designated stopping point. If this occurs immediately in the example above our position would be closed for a pip loss.
However, when using the benefits of a trailing stop we can then continue to lock in profit as the trend moves in our favor. Interested in learning more about Forex trading and strategy development? Register here to continue your Forex learning now! DailyFX provides forex news and technical analysis on the trends that influence the global currency markets. Click here to dismiss. How to Effectively Use a Trailing Stop.
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