Trailing stop-loss orders

You may have heard that one of the keys to successful trading is to cut losing positions quickly, and let winning positions run.

A trailing stop-loss order allows you to do just that. The idea is that when you have a winning trade on, you wait for the market to stage a reversal and take you out, instead of trying to pick the right level to exit on your own. A trailing stop-loss order is a stop-loss order that you set at a fixed number of pips from your entry rate. The trailing stop adjusts the order rate as the market price moves, but only in the direction of your trade. For example, if you’re long EUR/CHF at 1.5750 and you set the trailing stop at 30 pips, the stop will initially become active at 1.5720 (1.5750–30 pips). If the EUR/CHF price moves higher to 1.5760, the stop adjusts higher, pip for pip, with the price and will then be active at 1.5730. The trailing stop continues to adjust higher as long as

the market continues to move higher. When the market puts in a top, your trailing stop will be 30 pips (or whatever distance you specify) below that top, wherever it may be. If the market ever goes down by 30 pips, as in this example, your stop will be triggered and your position closed. So in this case, if you’re long at 1.5750 and you set a 30-pip trailing stop, the stop initially becomes active at 1.5720. If the market never ticks up and goes straight down, you’ll be stopped out at 1.5720. If the price first rises to 1.5775 and then declines by 60 points, your trailing stop will have risen to 1.5745 (1.5775–30 pips) and that’s where you’ll be stopped out. Pretty cool, huh?

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