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Posted on Mar 31, 2015 at 03:57 PM
One way successful traders cut their losses short and manage risks wisely is by using trailing stop loss
As easy as it is to trade the Forex market, it is also very easy to loose money. However we still have people that have entered the Forex market since inception. It is not that they never loose, in fact every trader no matter how professional he/she is, make losses from time to time.
What successful traders do is they cut their losses short and manage risks wisely. One interesting way they do this is by using trailing stop loss. Like the regular stop loss, the trailing stop loss also works to protect your capital just in case the market moves against you.
STOP LOSS VS TRAILING STOP LOSS
A trailing stop loss is not much different from a regular stop loss order. A stop loss order is an order that closes out your trading position with the intent of cutting your losses when the market moves against you. While a Trailing Stop loss order works by trailing (moving) a stop in your favor by a specific distance, as long as the market is moving in a favorable direction.
The basic function of the trailing stop is to increase your profit limit as the market moves, without the need for you to intervene and adjust. This allows you to follow trends with a safety you are comfortable with, that you don't have to monitor constantly.
ADVANTAGE OF TRAILING STOP LOSS
The trailing stop offers a clear advantage in that it is more flexible than a fixed stop loss. It is an attractive alternative because it allows the trader to continue protecting his capital if the price drops. But as soon as the price increases, the trailing feature kicks in, allowing for an eventual protection of profit while still reducing the risk to capital.
Another great advantage of a trailing stop is that it allows you to specify the amount you are willing to lose without limiting the amount of profit you will take.
Trailing stops makes up one of the primary techniques used by successful Forex traders to allow their profits to accumulate over time. Using them also has the distinct advantage of helping prevent winning trades from turning into lose.