In forex trading it is crucial that you use a good exit strategy in order to minimize loss risks associated with your trades. If you do not have an exit strategy then you might end up losing all your money. One forex exit strategy that you can easily use is the trailing stop, which will basically focus on moving stop levels whenever trades progress favorably.
How Does the Trailing Stop Work?
A trailing stop will usually be used in a connection with a stop-loss order. In order to successfully set a trailing stop we first need to determine stop-loss. The stop loss order basically refers to setting an amount that is lower when compared to the current currency prices. As soon as this value is reached by the currency pair traded the order is activated. Immediately the currency will be sold.
With trailing stops we do set up stop-loss values but we do not use a fixed amount in order to do that. We will use a percentage that is lower than market prices. As an example, if we see the price of $40 and we put in a trailing stop of 10%, when the price will reach 36 dollars the stop will be activated.
Trailing stops are called like this because they will move as the price will rise. If we use the same example as above, when the prices will go up to $44 the trailing stop level is going to be adjusted at $39.6. Trailing stops will only go up in value and will never become smaller as prices drop.
Using Trailing Stops
It is not easy to determine trailing stop feasibility or forex exit strategies. All basically depends on how much you want to risk it in order to gain a profit. To put it simple, this is one exit strategy that is better when compared with stop-loss due to the high profitability. The problem is that you can just optimize the forex trading systems in the trailing percentages and this is never enough to counter different fluctuations that can appear. Caution must always be used.