How To Use Trailing Stop Order For Crypto And Forex Trading

Last Updated on 21 mins by cryptoevent

One of the major goals of all crypto and forex traders is to be consistently profitable over a long period of time and money management is a crucial part of long-time trading profitability. Trading forex and crypto will always involve either a sell or buy order with the aim to profit from the markets. Apart from setting a fixed stop-loss, using a trailing stop order is another way to minimize losses or lock in profits. A trailing stop order is simply a movable stop-loss that is set relative to the current market price of a financial asset. It could be set based on percentages, an indicator, or a fixed dollar amount. Trailing stop loss is particularly useful to lock in profits in a winning trade without constantly monitoring the charts. It is a nice exit strategy that will automatically close a trade if the price reverses from a previous high to hit the trailing stop order.

The Importance Of Trailing Stop Order For Crypto And Forex Trading

Crypto and forex trading is similar to any other business where it is important to minimize losses, maximize profits, and have instant access to cash when the need arises. Trailing stop orders are great for both minimizing loss and maximizing profits while brokers with instant withdrawals allow you to have immediate access to your money any time you need to. In the crypto and forex market, the price never moves in one straight direction for a long time. Even in a trending market, there are usually times when the price will pause and move in the opposite direction of the trend to form a pullback before resuming the previous trend. Riding the trend is very nice but there are times when a pullback turns into a complete price reversal that hits a trader’s stop-loss. To avoid this, traders sometimes use a trailing stop order to lock in profits. A trailing stop order can also be used to minimize losses and increase the efficacy of a fixed stop-loss. This is especially useful when a losing trade is still in the stop-loss zone but away from the fixed stop-loss. In this case, the trader will not lose the full fixed stop-loss value but will only lose the negative value of the trailing stop order.

Trailing Stop Order vs Fixed Stop Loss

The standard stop loss most traders use for risk management is usually fixed and most times represents a certain percentage of their total trading balance. A fixed stop-loss is great as it helps limit losses if the asset’s price goes against a trader’s predictions. In addition to fixed stop loss, some traders set a trailing stop order which is not fixed but moves along with the current market price. The good thing about the trailing stop order is that it only follows the asset’s price in a single direction which is usually the potential profit direction and nearly every metatrader 4 platform for forex trading. The goal of a trailing stop order in a winning trade is to ride the trend as far as possible and still protect the loss of profits if there is a price reversal. Using a trailing stop order can get tricky as it may take some practice to decide how far or close the trailing stop order should be from the current market price. However, when you get the hang of it, trailing stop can significantly lower your losses and increase your earnings. Luckily a lot of MetaTrader 4 platforms for forex trading or crypto trading do feature stop loss in their arsenal.

Examples Of Trailing Stop Orders For Forex And Crypto Trading

The volatility of a forex or crypto currency pair could be very low this week and by next week the volatility could be double this week’s value. Therefore, it may not be logical to use fixed pips measurements to set a trailing stop order. Two common indicators used to set a trailing stop loss in forex and crypto trading are Moving Averages (MA) and the Average True Range (ATR). Moving Averages show the overall trend of the market while the ATR calculates market volatility across a specified period of time. If you aim to ride a very tight trend, you can use a short-range moving average like the 20-period moving average. While a wider range moving average like the 50-period moving average may be used to trail more loose trends. The readings of the MA and ATR can be set to any number you wish. The best practice is to study past data of a forex or crypto asset in order to know the best ATR or MA setting that gives maximum profits over a large data sample size.

Conclusion On Trailing Stop Order For Crypto And Forex Trading

There are times when a trade goes really far in the positive direction and then comes around to hit the fixed stop-loss. This is definitely a frustrating scenario especially if it happened because a trader was busy with other life activities and was unable to monitor the charts all day. This is where a trailing stop order would have easily locked in profits when the price starts to reverse. Apart from maximizing profits, a trailing stop order can also be used to minimize losses, especially when it is combined with a fixed stop loss. There are different ways to set a trailing stop order and it may take a bit of testing and practice to figure out the best method that best fits your unique trading strategy and personality.

Be the first to comment

Leave a Reply

%d bloggers like this: