What is the best trailing stop technique? This is a question that many forex traders would have at one point in their trading lives asked it.
The Trailing Stop Dilemma (TTSD)
What is the Trailing Stop Dilemma?
where is the best place to place a trailing stop without getting stopped out prematurely and at the same time, not too far away such that too much profit is eaten when price reverses.
Every forex trader at one stage would have wondered about the best trailing stop technique.
Let’s face it, you want to extract the maximum profit out from your trade, right? And in a trending market, the only way you can do that is to trail stop the market as long as you can until the market reverses and stops you out.
So how do you do that? Well, the next section below, we will show you how you can do this.
The Two Best Trailing Stop Techniques (In our opinion)
The best trailing stop techniques use support and resistance levels as the basis to trail stop trades that are profitable.
- So in a downtrend, lower swing highs (resistance levels) that form as price continues to move lower give the best spots to trail stop your profitable trades.
- In an uptrend, higher swing lows (support levels) that form as price continues to move higher gives you the best spots to trail stop your profitable trades.
These two charts below reveal the best trailing stop technique.
Trailing Stop Technique For A Downtrend Market
- This first chart above shows you the market in a downtrend.
- After your trade is in profit, you wait for lower swing highs that form and just place your trailing stop a few pips above them.
- you trail stop your profitable trade until price moves back up and intersects the most recent swing high, then you get stopped out with a profit.
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Trailing Stop Technique For An Uptrend Market
This second chart above shows you the best trailing stop technique for a buy trade that is in an uptrend market.
You see, in an uptrend market, price will go up but then fall back down to form these lower swing lows (which are essential, support levels). These are the best places for you to place your trailing stop. Just place them a few pips behind.
Advantage of This Trailing Stop Technique
- Less chance of you getting stopped out of a trade prematurely.
- in a strong trending market, you can make a lot of profitable pips.
- no need to continually check the market
- can result in great risk: reward ratio
Disadvantages of This Trailing Stop Technique
- Needs a lot of patience as trade can take weeks or even months as you ride trends. As a trader, you need to be able to resist the temptation to take profits as price does the inevitable reversals.
- A significant part of your profits will always be exposed in the market. You will ultimately lose some profits as the trade closes but you need to be ok with this as you can never milk every last pip from a trade.
Why not practice this stop loss technique on this demo account?
Also, please share your thoughts on trading with stop losses.