All known orders of Stop Loss and Take Profit allow to control the trading process, recording the losses and gains on pre-determined levels. However, when the price moves in the profitable direction you can manually move Stop Loss towards profit increase to bring the deal to a breakeven level in case the price suddenly moves in the opposite direction. Trading platform MetaTrader 4 allows you to automate the process of moving the Stop Loss in the direction of the growth of profit, using the option Trailing Stop (Trailing Stop).
The Essence Of A Trailing Stop
When using a Trailing Stop, a trader can automatically set the Stop Loss order once the price reaches a certain level of profitability. Moreover, this order will move the price in the profitable direction at a predetermined distance. With each new quote trading platform, MetaTrader 4, checks its value, and if the profit has reached a given level, the program sets the Stop Loss.
Then with each new value of the following occurs: if the price continues to rise, then Stop Loss moves program by the specified number of points from the price. If the price has implemented a reversal towards loss, then the Stop Loss remains at the same level, thus the transaction can be completed at the Stop Loss, but the break-even level.
The mechanism of Trailing Stop has the following scheme:
- The profit reaches a value of Trailing Stop — to the server from a shopping terminal sends the instruction about setting Stop Loss. The transaction is automatically set Stop Loss and trading position moves to breakeven.
- Quotes exceeded the value of Trailing Stop (for example, 1 point) — is sent to the server the request about moving the Stop Loss at a distance of 1 point from the previous value.
- Price turned in the opposite direction — Stop Loss does not move and remains at the same level. If the price reaches Stop Loss, the deal closes and the profit is fixed for the account.
- The profit has not reached the value of Trailing Stop after a trade is open — automatically Stop Loss is not placed, the transaction is not protected from losses.
How do you set a Trailing Stop
To put Trailing Stop in the trading platform MetaTrader 4 is easy. First we need to open a transaction on which you want to configure the order. After a transaction is open, click the right mouse button on the open order transaction, and then click “Trailing stop”. This allows you to assign the value at which Stop Loss is set automatically.
Please note that in order to avoid losses due to the strong loss-making traffic better to limit their losses in advance of putting manually the Stop Loss. Once income reaches a designated value (in this case 15 pips), Stop Loss will automatically be moved to the breakeven level. If the profit continues to grow, the order will automatically follow at a distance of 15 points from the price.
When the Stop Loss manually assigned, but assigned and Trailing Stop, then its value in the terminal window will be highlighted in yellow. To select the value of Trailing Stop on 15 pips. The larger the value you select from the dropdown list, and if necessary, type it in:
To do this, call settings Trailing Stop click the right mouse button and select “Set level”, as shown in the screenshot above. This will open a window where you can enter any desired value, but not less than 15 points. The value of Trailing Stop each trader individually, according to their own trading system:
In the drop down box alongside “Set the level” you can also see the items “Delete all” (allows you to simultaneously disable all designated Trailing Stop on all open positions and pending orders) and “No” (disables the Trailing Stop).
What else you need to know about Trailing Stop
To get the maximum benefit and effective to trade when using the Trailing Stop it is necessary to take into account the following practical aspects:
- Trailing Stop is individually tailored for the terms of trade of each trader. Its value directly depends on the currency pair used by the trader. More volatile pairs are more significant correction. This means that for the first species pairs is necessary to set a larger Trailing Stop than for the second. Why is it necessary? This is necessary in order to avoid premature operation of break even, so how close Stop Loss often leads to closing the sale, and then price continues to move in a profitable direction.
- Trailing Stop is processed solely in the trading terminal MetaTrader 4, and not on the company server. For example, the standard set Stop Loss and Take Profit which a trader appointed independently, are recorded on the company server. This means that if a trader will turn off the terminal, the orders still work. For Trailing Stop, this statement is only partially true. Trailing Stop will only work when enabled trading platform. If the program is shut down, the server recorded only the last value automatically set a Stop Loss which will be hit when needed. But the Stop Loss has to move will not be following at a specified distance from the price.
- Trailing Stop performs well in dynamic explosive pulses prices. In these occasions the market we can also observe the price adjustment, but their value is relatively small compared with the impulses and insufficient in order to catch automatically following the Stop Loss price. It is important for strong pulses with the trend or in the news time when there is a recoilless surge in prices. But even in these cases, too small a Stop Loss will not allow you to get maximum profit, as it will lead to premature closing of the transaction.
- Planning to use a Trailing Stop and open a trade, set initial Stop Loss manually on the importance, in your opinion, would be acceptable and safe. Subsequently, when triggered Trailing Stop and Stop Loss will be set automatically, your Stop Loss will be cancelled. But it will be only in the case of a beneficial price movement. If Stop Loss not set manually and the transaction will move in an unprofitable direction, it will not protect against losses, which prevented the loss of funds in the account.
Thus, the use of Trailing Stop is not a guarantee of profit. Benefits it will bring only with its proper use, and this is only possible if you have a certain experience of the trader. Trailing Stop is not appropriate in any situation. For example, in the flat he will bring the trader either losses or only a small profit as the price moves in a certain price corridor and constantly return to the place of opening of the transaction.