In today forex faq, we are talking about stop loss and below is the question from one of our fellow traders.
Do you think trailing stops are good for short term intra-day trades?
In case some of you do not know what exactly trailing stop loss is, let me spend some time to go through this. I bet you guys have heard of stop loss and I hope all of you have been using it in your trading so far.
When we are using stop loss, we are actually fixing it to a particular value. As for trailing stop loss, it is a variable quantity that will move as your price continues to move in your favour.
For example, you place a target profit at 100 pips. Alternatively, you can place a trailing stop loss at the 100 pips value and then set it at 20 pips. What happens later is when the price hits your target of 100 pips; the trailing stop loss will be activated.
If the price retraces back 20 pips, you will be stopped out which means that your profit will be 80 pips instead. However if the price continues to move in your favour and hit example 150 pips, your stop loss will now be raised to the 130 pips level which means that you are now making additional 30 pips as compared to your original target of 100 pips.
If the price moves to 200 pips, your stop loss will now be at the 180 pips level. If the price retraces back to the 180 pips level, you will be stopped out but you are making additional 80 pips.
Now let us come back to the question above. Trailing stop loss is only effective if you are talking about setting it at 20 and above pips. If your trading method can lock about 80 pips and above, I will suggest you to use trailing stop loss.
If you are simply scalping the market for 15 to 20 pips, it will not be that effective. However you can give it a try for one month to see if you are making more money with trailing stop loss or not.
Above is simply my personal opinion and for those of you who has the experience of using trailing stop loss, do feel free to give your comment below as it will be valuable to others here in this community.