Moving Trailing Stops

Filed under: Learn Forex Trading |

Probably one of the most difficult decisions to make when trading forex is deciding when to take your profits. Unless you are watching your trades 24/7, which is impossible really, then you should always set an automatic stop loss to get you out of a trade when it moves against you. One thing you must never do is keep moving your stop loss wider as a trade moves against you. But if the trade is moving in your favour, you can move the stop loss up to lock in some profits, or at the very least, move to breakeven.


The problem with moving your stop losses up, or trailing your stops as it is known, is that the markets naturally do not move up or down in a straight line. They breathe in and out, and if you keep your stop losses too tight to price, then you will inevitably get stopped out and not make the maximum amount of profits. This provides a tricky conundrum for traders. How tight should you keep your trailing stop, and when should you move it up?


One thing you could do if trading off a daily chart is to trail your stop losses half way between an 8-day EMA and a 21-day EMA. This works really well in trending markets, as price rarely goes below the 8-day EMA and tends to bounce off of it.


Another thing you could do is to always stay 2R (two times your risk) away from the price. So if your target is five times your risk and price makes it to 2R, move your stop to breakeven. If price gets to 3R, move your stop to 1R, and so on.


In summary, there are many ways in which traders can trail their stop losses, and I have given you just a couple of examples here. It is important to protect your bank, and trailing your stops does exactly this.

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