Forex Trading Education - What is a Trailing Stop Loss?

By: Harold Hsu

Trailing stop losses are a very popular topic among new traders. It seems like trailing stop losses have the best of both worlds: you can protect yourself from losing too much, and also lock in more and more profits at the same time.

What Is A Trailing Stop Loss?

Basically, a trailing stop loss involves the moving of your stop loss level as your trade progresses in your favour.

For example, when you buy a currency pair and the price moves up 30 pips, your stop loss level (which was initially 30 pips below your entry price) is then moved to your entry price, ensuring that you won't lose any money.
When the market rice moves a further 30 pips higher (a total of 60 pips above your entry price), your stop loss level will be positioned at 30 pips higher than your entry level.

However, when prices start moving against your favour, the trailing stop loss does not shift.

2 Types Of Trailing Stop Loss

Trailing stop losses can either be placed manually by the trader, or automatically placed by a trading platform.

Manual trailing stop losses are typically placed at prominent support/resistance levels, especially below previous swing lows or above previous swing highs. It is up to the individual trader to determine where to place the trailing stop loss.

A more popular way of using stop losses however, is by setting a fixed pip amount to trail the market price. This can be done in most trading platforms.
In the above example, the trailing stop loss is set to trail the market by 30 pips. It is initially placed below the entry price by 30 pips, and as the market price moves up by 30 pips, the stop loss is shifted to the entry price (which is 30 pips below the new market price).

Foreign Exchange
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 

» More on Foreign Exchange
 



Share this article :
Click to see more related articles