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Using The Fx Trailing Stop With MT4

The forex trailing stop is a stop that you can set in an expert advisor on the Metatrader 4 platform. It is pretty much what you might guess from the name: a stop loss that moves according to the current prices on the forex market. And a stop loss, of course, is a marker you set that will cause your MT4 expert advisor autopilot software (EA) to exit the trade when it goes against you to prevent you having any risk of a large loss.

But there are several things to be taken into account when you consider how to use the trailing stop. It is a little like a ratchet in that it can move up but not down. When you move into profit, it follows behind, moving up by the same number of pips that the market moved. But if the market falls, it stays where it is. So the market can rise and rise and you go on making more profit, but when it falls just a little way, the stop loss comes into effect and exits your trade with whatever profit or loss you made up until that point.

To give an example, you open a trade to go long. Of course at the moment of opening you are at point zero: 0 pips profit or loss. Let’s say you set your trailing stop at minus 30 pips. If you are unlucky and the forex market just falls and falls, the stop loss will kick in and close the trade for you at 30 pips down. But if the market rises, the stop loss will rise with it.

So when the market is 20 pips in your favor, your stop will have moved to 30 pips below that. If the market then falls and the price hits the stop, the EA would get you out with a loss of just 10 pips.

If the market rises to 40, the stop moves up to 10 above zero. You then have a guaranteed profit of 10 pips. In fact as soon as the market rises by the same number of pips as your trailing stop (in this case 30) you cannot lose.

Sure you could monitor the markets and operate this strategy yourself, but there is a risk of you failing to make your exit at the right moment and taking a greater loss than you planned, or having to exit a trade while the market is still rising because you have to sleep or whatever. So as long as you can leave MT4 running, an EA on autopilot relieves a lot of the pressure that would otherwise be on you in this situation.

The volatility of the market is the main factor in deciding where to set the trailing stop. You do not want to take a heavy loss but at the same time you do not want to have the stop triggered by random fluctuations in the market. A forex trailing stop that is too close to the starting price will be triggered so often that you could end up making constant small losses.

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Monday, May 18th, 2009 fx trading software No Comments