Online Forex Trading Course

Online Forex Trading Course


#369: Should You Use a Trailing Stop Loss?

June 07, 2020

Should You Use a Trailing Stop Loss?

Podcast:

#369: Should You Use a Trailing Stop Loss?
In this video:
00:26 – How to manage trades?
01:08 – Don’t move your stop loss to breakeven
01:50 – Disadvantages of a trailing stop
03:17 – Where do I place a stop loss?
04:05 – How I manage a stop loss
06:15 – Try to avoid moving to breakeven and avoid trailing stops
06:40 – Email me if you have any questions about trading the Forex market

Should you trail your stop, or should you move your stop to break even, or should you do something completely different? Let's talk about that and more, right now.

Hey Forex traders, it's Andrew Mitchem here at The Forex Trading Coach, with video and podcast number 369.

How to manage trades?

Now, I quite often get emails asking me about how I manage trades, and I've had an email come through just today, and it's from someone who's saying "Hey Andrew, can you tell me the best way to trail a stop?" and they basically said they want to use trailing stops, and how should they use it? My question back to them is quite simple. It's how big a stop-loss should you use? And it's like "well, how long is a piece of string?" It really is a level or a number that no one can tell you what you should do, because in my opinion, you should not use trailing stops.

Don’t move your stop loss to breakeven

I also don't think you should move your stop to break even either. Because when you think about it, moving a stop to break even doesn't actually do anything. It might make you feel all warm and fuzzy, and "Well, I can't lose on this trade," but from a trading point of view, and if you actually look at your trade's bigger picture longer term, if you just move your stop to break even, does that actually improve your trading success and your overall profitability?

I highly doubt it does, because when you move your stop to break even, when do you decide to do that? Do you move it when you're almost at your profit target? Do you move it really soon, and then you get stopped out all the time? How do you decide? And it's a little bit like a trailing stop.

Disadvantages of a trailing stop

One of the big disadvantages of a trailing stop is that on most platforms, you actually have to have your computer on, in order for that trailing stop to work, certainly on the MetaTrader platform you do. You can't just put a trailing stop in and turn your computer off, because the trailing stop actually sits on your computer, rather than on the broker's service, unlike a fixed stop or fixed profit target.

And then it comes down to the point of how big is your trailing stop, and when do you introduce that trailing stop? Now, an example would be the Euro British Pound, doesn't move very much, but if you're trading something like the Euro New Zealand or the Pound New Zealand dollar, and then the same stop loss that you use on your Euro-Pound would be stopped at all the time on your bigger moving pair. And then of course, it comes down to another thing: what timeframe charts are you trading, and how big is your stop-loss anyway. So it all becomes quite a bit... It becomes very messy and it doesn't become something that you can do very well with consistency. It starts to become emotional and a bit of guesswork on there. And I don't like emotions and guesswork in trading. I like to know facts on like to know actuals. And I think that's where people who play around with their stop-losses too much actually come on stuck. They actually think they're doing a good thing, but in reality, they're probably not really doing themselves any trading favours.

Where do I place a stop loss?