I am glad that I have received emails from readers telling me how much they like the post that I have written about the trailing stop loss a few days back. At the same time, there are readers who ask me to show them examples of how to use this trailing stop loss and that is exactly what I am going to do in this post.
Let us start with using the EURUSD 4 hour chart as an example. Let says that I decided to enter a trade at 1.33783 where the price came back to retest the new support.
At this point of time, I could set a trailing stop loss at 1.35783 which is 200 pips from the point of entry. Do note that you still have to set a normal stop loss as the trailing stop loss will only be activated when the price hits 1.35783. When setting your trailing stop, you need to specific after how many pips of retracement you are going to exit your position. In this example, I will set it to 30 pips.
The trailing stop loss level is always your target profit. The whole purpose of using trailing stop is to get more pips from your trade. Once the trailing stop loss is activated, your normal stop loss will be deactivated.
From the picture below, you can see that the price has hit the red line which is where the trailing stop loss is being placed. After hitting that level, the price continued to move another 112 pips which means that you are making additional profit.
As the price retraces back by 30 pips, your position will then be closed. In this example, you are making extra 82 pips from the normal 200 pips trade. As I have stated in my previous post, this type of stop technique is only applicable to trade with at least 80 pips of target profit and above.
I hope that this example is good enough to show you how this technique works and do feel free to give your comment below. If you have question, do feel free to ask by commenting below.