Part 1: Trailing Stops - Theoretical

Agenda

• Advantages of a Trailing Stop• Trailing Stop vs Traditional Stop Loss• An Example

What is a Trailing Stop?

• An advanced type of stop loss order

• Adjusts as the market moves in your favor

• Maintains its level when the market moves against you

• Reduces the need for you to manually move your stop

When placing a Trailing Stop, you need to decide how you want to set the following two parameters:

1 – Distance to Market 2 – Trailing Step

Distance to Market and Trailing Step

Distance to Market

+Trailing

Step

When placing a Trailing Stop, you need to decide how you want to set the following two parameters:

1 – Distance to Market 2 – Trailing Step

Distance to Market and Trailing Step

Distance to Market

+Trailing

Step

Distance to Market + Trailing Step

Trailing Stop vs

Traditional Stop Loss

Trailing Stop Orders vs Traditional Stop Loss Orders• Traditional Stop Loss Order – static

Entry

Limit Order

Traditional Stop Loss

Trailing Stop Orders vs Traditional Stop Loss Orders• Traditional Stop Loss Order – static Limit Order

Traditional Stop Loss

• Trailing Stop Order – dynamically updates the stop price Limit Order

Trailing Stop LossEntry

Entry

An Example

Buy EURUSD at 1.2145

Place the trailing stop price at 1.2115

Define Distance to Market as 45 pips and Trailing Step as 5 pips

Entry

Buy EURUSD at 1.2145

Place the trailing stop price at 1.2115

Define Distance to Market as 45 pips and Trailing Step as 5 pips

As the market moves in your favor, your trailing stop adjusts by 5 pip steps

Remember!Distance to Market + Trailing Step

(45 + 5)

As the market moves against you, your trailing stop stays in place

Entry

Buy EURUSD at 1.2145

Place the trailing stop price at 1.2115

Define Distance to Market as 45 pips and Trailing Step as 5 pips

As the market moves in your favor, your trailing stop adjusts by 5 pip steps

Remember!Distance to Market + Trailing Step

(45 + 5)

As the market moves against you, your trailing stop stays in place

Entry

40 pips

Buy EURUSD at 1.2145

Place the trailing stop price at 1.2115

Define Distance to Market as 45 pips and Trailing Step as 5 pips

As the market moves in your favor, your trailing stop adjusts by 5 pip steps

Remember!Distance to Market + Trailing Step

(45 + 5)

As the market moves against you, your trailing stop stays in place

Entry

45 pips

Buy EURUSD at 1.2145

Place the trailing stop price at 1.2115

Define Distance to Market as 45 pips and Trailing Step as 5 pips

As the market moves in your favor, your trailing stop adjusts by 5 pip steps

Remember!Distance to Market + Trailing Step

(45 + 5)

As the market moves against you, your trailing stop stays in place

Entry

50 pips

Buy EURUSD at 1.2145

Place the trailing stop price at 1.2115

Define Distance to Market as 45 pips and Trailing Step as 5 pips

As the market moves in your favor, your trailing stop adjusts by 5 pip steps

Remember!Distance to Market + Trailing Step

(45 + 5)

As the market moves against you, your trailing stop stays in place

Entry

Buy EURUSD at 1.2145

Place the trailing stop price at 1.2115

Define Distance to Market as 45 pips and Trailing Step as 5 pips

As the market moves in your favor, your trailing stop adjusts by 5 pip steps

Remember!Distance to Market + Trailing Step

(45 + 5)

As the market moves against you, your trailing stop stays in place

Entry

50 pips

Buy EURUSD at 1.2145

Place the trailing stop price at 1.2115

Define Distance to Market as 45 pips and Trailing Step as 5 pips

As the market moves in your favor, your trailing stop adjusts by 5 pip steps

Remember!Distance to Market + Trailing Step

(45 + 5)

As the market moves against you, your trailing stop stays in place

Entry

Buy EURUSD at 1.2145

Place the trailing stop price at 1.2115

Define Distance to Market as 45 pips and Trailing Step as 5 pips

As the market moves in your favor, your trailing stop adjusts by 5 pip steps

Remember!Distance to Market + Trailing Step

(45 + 5)

As the market moves against you, your trailing stop stays in place

Entry

Buy EURUSD at 1.2145

Place the trailing stop price at 1.2115

Define Distance to Market as 45 pips and Trailing Step as 5 pips

As the market moves in your favor, your trailing stop adjusts by 5 pip steps

Remember!Distance to Market + Trailing Step

(45 + 5)

As the market moves against you, your trailing stop stays in place

Entry

Buy EURUSD at 1.2145

Place the trailing stop price at 1.2115

Define Distance to Market as 45 pips and Trailing Step as 5 pips

As the market moves in your favor, your trailing stop adjusts by 5 pip steps

Remember!Distance to Market + Trailing Step

(45 + 5)

As the market moves against you, your trailing stop stays in place

With our trailing stop, we get stopped out at 1.2155 (10 pip profit)

Entry

Entry

Buy EURUSD at 1.2145

Place the trailing stop price at 1.2115

Define Distance to Market as 45 pips and Trailing Step as 5 pips

As the market moves in your favor, your trailing stop adjusts by 5 pip steps

Remember!Distance to Market + Trailing Step

(45 + 5)

As the market moves against you, your trailing stop stays in place

With our trailing stop, we get stopped out at 1.2155 (10 pip profit)

A traditional non-trailing stop order would have been executed at 1.2115 (30 pip loss)

Summary

• Advantages of a Trailing Stop• Trailing Stop vs Traditional Stop Loss• An Example