Methods to Trailing FOREX Stops

Forex stops allow currency traders to have market exit strategy that will help them maximize their profits and cut potential losses. With these tools, a trader can allow profits to continuously run as long as market conditions would permit, while stopping significant losses in case market conditions become unfavorable. The practicality of using trailing stops makes them an essential tool in any trading platform that requires the technical analysis of price fluctuations, just like in the forex market. Here are the most common methods to forex trailing stops.

Using Trend Following and Mean Regression

With a trend following technique, a trader can effectively use trailing stops. Under this technique, one can expect to have more losses than wins. Thus, for you to profit from this kind of trading style, you need to keep your losses small and put in a big trade only when significant changes to a trend occur. In trend following, even if you finally gain winning trades, you need to make sure that your wins do not convert into losing trades. To do this, you need to set tight trailing stops.

Meanwhile, mean regression refers to a trading style that takes full advantage of the fact that currency prices always tend to return to an average value or mean after a currency has been oversold or overbought. Using this trading style, you need to have profit targets that are fixed and you also have to implement tight stops.

How to Limit Losses and Protect Your Profits

Limiting your losses depends on what trading position you are in. Essentially, you need a stop loss to help you avoid significant losses when the currency trend fails to be in your favor. With any good forex software, you can easily establish the maximum amount of loss that you can take. If the currency you are trading in reaches that point, you automatically exit the market. This is one of the forex stops that protect you from totally losing all your money in the market.

In forex trading, protecting your profits mean setting a take profit level. This kind of stop ensures that you exit the market with profit once the market trends downward or against your favor. Both the stop loss and the take profit levels can minimize blunders that you may commit when you are trading.

Manual and Automatic Forex Stops

Forex trading software allows automatic trailing stops. Hence, whenever the currency prices rise, your stop will rise too so that you can maximize profits. If the prices are on a downward trend or against your favor, the trailing stop will automatically lock your profits and make sure that you do not suffer significant losses.

However, there are times when manual stops can give you better control of your trades.  For instance, if you have already locked in on your target profit levels, you may tighten the trailing stop manually to give you more room to make a bigger profit. Moreover, external factors like current events or changes to trading rules will require you to adjust your trailing stops manually.


blog comments powered by Disqus