How to use a trailing stop to maximise profits
A trailing stop is a helpful tool for a trader to increase the efficiency of his work. With its help, a trader can increase expected profits or minimise possible losses. This approach, like stop loss, aims to close the trade in the event of a market reversal. However, there are differences between the two.
The trailing stop is a dynamic or trailing stop loss. Characteristics of the order:
– when opening a certain position, its movement coincides with the price increase;
– in the case of opening a short position, it follows the price of the asset as it falls;
– is placed at a certain distance from the current price;
– updates occur depending on changes in the position movement.
If the price rises, the instrument automatically follows the path of the asset. However, if the price changes the trend, then the position will close and bring the trader profit.
This order will be an ideal assistant when a player cannot constantly monitor the status of positions. At the same time, the tool is only effective if the trading platform works smoothly.
The trailing stop is activated when the price reaches a certain level. In this case, the trade is closed with a profit.
Differences from stop loss
Trailing stop is considered a type of stop loss, but there are differences between the tools:
1. Traders use this tool to maximise profits when the market moves in the right direction.
2. It moves with the price when the direction is favourable. If it moves against the trader, the order stops.
Stop loss:
1. Helps to minimise losses when the market movement is not in line with the broker’s strategy.
2. Remains at the previously set price level regardless of where the price goes.
3. Becomes active when the price reaches the set level.
Thanks to the trailing stop, the trader can quickly close the position to reduce potential losses thanks to the trailing stop. The order is ideal for a period of volatility when you need to react quickly to the situation. It changes positions in real time, providing up-to-date information on the dynamics.
The tool works automatically, significantly simplifying the broker’s work. It is especially relevant for traders who trade several assets.
Trailing stop is considered a universal tool for various strategies. However, it is important to take into account several features that affect the trading result. For example, the order will work correctly only when connected to the trading platform. In the event of a failure, its information will be irrelevant.
It is also worth noting that tool are ineffective in markets with high volatility. In this case, positions are often closed early, and the trader receives a small profit. In addition, the price may continue to move in the desired direction. To minimise risk, experts recommend increasing the trailing stop range. In addition, it is better to use a stop loss in case of active volatility growth.
