Trailing Stop

Trailing Stop

A Trailing Stop Loss order sets the stop price at a fixed percentage or number of points below or above the asset's market price. This article will tell how to use a trailing stop loss and how this strategy can influence your trading strategy.

What is a trailing stop?

A trailing stop is a modification of a typical stop order that can be set to a specific percentage or amount of money of the asset's current market price. For a long position, the trader places a trailing stop below the current market price, and for a short position, the trader places a trailing stop above the current market price.

A trailing stop is designed to protect profits by allowing the trade to remain open and continue making profit as long as the price moves in investor's favor. The order closes the trade if the price changes direction by the specified percentage or amount of money.

A trailing stop is usually placed at the same time as the initial trade, although it can also be placed when the trade is already opened.

How does a trailing stop work?

Trailing stops only move in one direction because they are designed to lock in profits or limit losses. If a trailing stop loss of 10% is added to a long position, a buy trade will be closed if the price drops 10% from its post-buy peak price. The trailing stop moves up only after a new high has been established. Once a trailing stop has moved up, it can no longer move down.

A trailing stop is more flexible than a fixed stop loss order because it automatically tracks the direction of the asset price and does not need to be reset manually like a fixed stop loss.

Investors can use a trailing stop for any asset class if the broker provides this type of order for a traded market. Trailing stops can be set as limit orders or market orders.

How to set a Trailing stop in MetaTrader 5

To set a trailing stop in MT5, you need to make several steps:

  • Go to the dashboard and choose the trade you want to set a trailing stop loss for.
  • Right-click a trade to open the options menu.
  • In the menu click on the "trailing stop".
  • A new menu will appear where you can select preset stop loss points or set your own value.
  • To set a custom value, select a custom option.
  • A new window will appear where you can enter your own trailing stop value.
  • Enter the trailing stop level and click OK.

trailing stop in MetaTrader 5 settings.png

Trailing stop pros and cons

Trailing stop pros

One of the biggest benefits of a trailing stop is the flexibility, as you don't have to manually move your stop if your position moves in your favor and you want to adjust your exposure accordingly.

If you leave an underlying stop on an open position that you then do not adjust if your trade is profitable, your position will only automatically close if it returns to where you originally placed your stop. Any profit that you could have made from the position if you had closed it earlier will be lost.

A trailing stop helps prevent this by protecting profits from a successful trade while also minimizing losses.

Trailing stop cons

When you set a trailing stop, you must be careful not to set the trailing step too far from or too close to the market price. If you set it too far, you risk unnecessary losses, but if you set it too close to the market price, you may be closed before your trade has a chance to make a profit.

Example of a Trailing Stop

Let's say you think XAUUSD is entering the bullish market, so you decide to buy it at 1650 with a trailing stop at 1600.

Since this is a trailing stop, you will also need to enter a trailing step. The trailing step decides how much the XAUUSD should move forward so that your stop moves with it. So, if you set your stop to move every time the XAUUSD moves five points, then it will move to 1605 when the XAUUSD calls 1655, and so on.

Let’s suppose that gold jumped to a high of 1700 before pulling back - your trailing stop would go up to 1650 and would be triggered if the market fell below that price. Your position in this case would be closed at the breakeven level, i.e. without a loss.

Conclusion

Trailing stop is a great feature to try and save your earnings during trading. Practicing its usage will improve your trading skill.

Back

2022-11-18 • Updated

Frequently asked questions

  • How to withdraw the money you earned with FBS?

    The procedure is very straightforward.  Go to the Withdrawal page on the website or the Finances section of the FBS Personal Area and access Withdrawal. You can get the earned money via the same payment system that you used for depositing. In case you funded the account via various methods, withdraw your profit via the same methods in the ratio according to the deposited sums.

  • How to open an FBS account?

    Click the ‘Open account’ button on our website and proceed to the Personal Area. Before you can start trading, pass a profile verification. Confirm your email and phone number, get your ID verified. This procedure guarantees the safety of your funds and identity. Once you are done with all the checks, go to the preferred trading platform, and start trading. 

  • How to start trading?

    If you are 18+ years old, you can join FBS and begin your FX journey. To trade, you need a brokerage account and sufficient knowledge on how assets behave in the financial markets. Start with studying the basics with our free educational materials and creating an FBS account. You may want to test the environment with virtual money with a Demo account. Once you are ready, enter the real market and trade to succeed.

  • How to activate Level Up Bonus?

    Open Level Up Bonus account in web or mobile version of FBS Personal Area and get up to $140 free to your account.

Deposit with your local payment systems

Feel the Team Spirit

Data collection notice

FBS maintains a record of your data to run this website. By pressing the “Accept” button, you agree to our Privacy policy.

Callback

A manager will call you shortly.

Change number

Your request is accepted.

A manager will call you shortly.

Next callback request for this phone number
will be available in

If you have an urgent issue please contact us via
Live chat

Internal error. Please try again later

Don’t waste your time – keep track of how NFP affects the US dollar and profit!

Beginner Forex book

Beginner Forex book will guide you through the world of trading.

Beginner Forex book

The most important things to start trading
Enter your e-mail, and we will send you a free Beginner Forex book

Thank you!

We've emailed a special link to your e-mail.
Click the link to confirm your address and get Beginner Forex book for free.

You are using an older version of your browser.

Update it to the latest version or try another one for a safer, more comfortable and productive trading experience.

Safari Chrome Firefox Opera