Trailing stop is an order whose operation is an automatic maintenance of open position with permanent shifting of stop loss level based on the market movement.
If a Trader opens a buy position and place the distance from current price to trailing stop in pips. If the market price moves upwards, the trailing stop trails after it automatically projecting to the set distance. Just in case the price goes down, then the trailing stop quote remains on the spot. During this approach, a trader applying trailing stop has a chance to derive more profit at ascending value with no relation to the set Take Profit. Moreso, trailing stop may also sct a loss limiter.
As an example, a trader opens a long position at the value of 1.3400 and puts the trailing stop by 50 pips back, i.e. at 1.3350. Just in case the market starts moving upwards and exceeds the point of 1.3400, trailing stop tails it naturally maintaining the set distance of 50 pips from this value. That means, if the price hits 1370, the trailing stop changes to 1320.
If the market price turns down, the price doesn’t amend its position.
On selling position, trailing stop behaves quite opposite. If a trader puts it a number of pips higher. At a market price declining, the trailing stop shifts in line with the pre-determined size. With the rising price, the trailing stop doesn’t move.
Applying trailing stop in Forex operations, a trader can take away stop loss orders manually in line with trade profit increase. Trailing stop sets a stop loss level at the price the trader wants.
Trailing stop is principally utilized by traders who run trend trading and have few chance to track price movements for good. Trailing stop usage is additionally useful at intraday trading, once fast reaction to any price movement is needed.
Trailing stop works solely in an online trading terminal. Once the terminal is offline, the stop loss is maintained at its current spot.