What Is A Trailing Stop?

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Trailing Stop Definition

A trailing stop is an automated mechanism to have the stop loss trail behind the current price of an order by a set number of points. This is one of the best tools for risk management.

When is a trailing stop used?

A trailing stop is often used when an order’s price is volatile or when active monitoring of the order isn’t possible since it can automatically close an order.

How does trailing stop work?

A trailing stop features a moving stop loss behind the current price at a distance that you set. This means that if the market trend reverses, you are assured some of your profit. It’s a useful tool if you are not able to actively monitor the order.

Example: You open a Buy order and set your Take Profit (TP) and Stop Loss (SL) 10 points below the current price. Your order is making a profit, but you need to move away from the trading terminal for a while. Worst case scenario the price starts falling before it hits the take profit level and closes at your set stop loss level. You can use a trailing stop to make sure the order closes while it is still profitable. This will mean your stop loss always remains 10 points behind the current price instead of staying in its original position.

Trailing stops can provide great value as a risk mitigation tool.

When does it start/stop working?

To activate a trailing stop, the order needs to be profitable by a set number of points. Only after this condition is met will this feature be available.

How to set up a Trailing Stop?

To set up a Trailing Stop on MT4 or MT5, follow the below-mentioned steps:

1. Right-click on the open order in the Trade tab.
2. Select Trailing Stop.
3. Select the number of points you would like to have the Stop Loss trail your price: You may choose from the options or click Custom to enter your preferred value.

Few points to remember:

• The Trailing Stop cannot be set less than the stop level.
• The minimum trailing stop amount that can be set will depend on the stop level pips for each particular instrument, as shown in the Contract Specifications.
• A trailing stop can never be set less than 15 points in MT4 due to limitations on that trading terminal.
• The Trailing Stop will start working only after the order has started moving in a profitable direction by the exact number of points the Trailing Stop is set at.
• Each time a Trailing Stop modifies the Stop Loss, it will be recorded in the journal tab.
• Trailing Stop can be set up irrespective of whether, or not a Stop Loss was set initially.
• Trailing Stop is available only on MT4 and MT5 desktop terminals.
• Once the trading terminal is closed or your device is shut down, the Trailing Stop will stop working.

How to remove a Trailing Stop?

After you have set up a Trailing Stop, you can also modify it. Better still, you can remove it if you don’t wish to use it.

Let us find out how to remove:

1. Right-click on the open order in the Trade tab.
2. Select Trailing Stop.
3. Select None.

Related: Trading Indicators – Acceleration Deceleration

If your trading terminal crashes, closes or the computer shuts down, the trailing stop is removed because it is not saved on the server. To avoid this, you may use the free Exness VPS service.

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