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- Previous part of tutorial: Fibonacci trading tools in Forex
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Trailing stop is another great tool which can help in your Forex trading. It is simple, but can help you to catch big moves.
There are few types of trailing stop losses. Sometimes they are built in the trading platform. You can’t find them in Metatrader so you must download and install it. Search for chandelier mt4 trailing stop loss and you should find the best version.
How to use trailing stop loss
Idea behind trailing stop loss is very simple. If price is above trailing line, you should be long.
If it is below trailing line, you should be short. Simple as that.
The main advantage of trailing stop loss is that it allows you to stay in the trend and take big profit of that.
Example above shows rather well how it works. It works as stop line. You can see that when move up ended and price closed below blue line, it was time to close trade.
Best settings for trailing stop loss in Forex
It is a common question – best settings for trailing stop loss. You should work it out by yourself. One settings may work great on specific currency and time frame but they can be out of place on another. That is why it is best to test settings on price history. You can play with Length and ATR Period but it is Kv parameter which interest you most.
It is not always that easy
Trailing stop loss is easy to use, but there are things you should remember about. It works great when trend is strong. There are times where moves are strong or when there is no specific direction.
When there is a range move, you can easily overtrade and lose money. So, we are talking about situations like this:
Time frame for trailing stop loss in Forex trading
Time frame depends from your trading style, but you can try trailing stop loss on time frames like 15m, 30m, 1h. Trends here can last for some time and profit may be good. If you go lower with trailing stop like 1m, 5m it is much harder – mainly because rapid moves.
Strategy for trailing stop loss
You can use only trailing stop loss but it works best when you join it with other tools. As always, you want to trade in the direction of current trend. That is why it is ok to join trailing stop loss with averages. Thanks to that you can filter false signals, like in example below. After move down there was a change in trailing stop loss and signal to go long. As you can see, price was then below average. That means that it was best to wait for break above it. It didn’t happen. It was a false signal after all.
Trade examples
GBP/JPY, 30m
First, there was a signal to go long and strong move up. When move ended, price closed below blue line, it was signal to close. Next, price was below red line (signal to go short) but it was above moving average. It was best to wait for another confirmation. Eventually, price broke below that average, but notice that it was still above support line. It is important to draw support / resistance lines because they help us to make trading decision.
USD/JPY, 4h
This is a good example that sometimes trailing stop loss can help you to catch really big moves. If you are a long term trader, you can easily use it in your strategy.
- Previous part of tutorial: Fibonacci trading tools in Forex
- Next part of tutorial: Moving averages in forex trading (and not only FX)
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