Trailing Stop Loss
Published: 7 October 2020 by Andrew
In online trading, before starting, it is important to know some of the tools underlying platform operations. One of these is called Trailing Stop and in this guide we will analyze what it is for and how to use it to maximize your profits.
The steps that allow you to use the Trailing Stop can be summarized as follows:
- Register with a regulated and secure Broker
- Practice on the Demo account to become familiar with the trading platform
- Make the minimum required deposit and take advantage of the Trailing Stop on the real market
Thanks to online brokers such as eToro it is possible to apply the Trailing Stop to each market. Here are the best platforms that offer this tool:
Min. Deposit: 50€
Min. Deposit: 100€
Min. Deposit: 50€
Min. Deposit: 250€
Min. Deposit: 100€
Min. Deposit: 250€
What is Trailing Stop?
The Trailing Stop is a stop order that is not fixed but follows the stock price. In practice it is a Stop Loss that always remains at a certain distance from the maximum marked by the price.
Obviously the Trailing Stop, also called dynamic Stop Loss, must be positioned below a long trade (buying) and above a short trade (a short sale).
The distance of the dynamic stop loss from the price can be a certain number of pips or a percentage of the price.
This particular order serves to protect against drawdowns or trend reversals, allowing traders to keep the profits gained up to that point or limiting their losses.
The Trailing stop can be placed at the time of opening a trade, or it can replace a Stop Loss when the market moves in the trader’s favor and you want to maximize profits.
Where to use Trailing Stop
The Trailing Stop is an automatic mechanism that is present in the best trading platforms offered by online brokers.
In these platforms, dynamic Stop Loss can usually be placed directly on the chart, be it forex charts, stocks, indices, etc.
The best platforms out there are those offered by CFD Brokers who are commission-free intermediaries. Here are the distinctive features of the best online brokers:
- They must offer CFDs, contracts that allow you to trade both up and down (short selling)
- They don’t have to charge commissions
- They must have at least one license issued by CONSOB or CySEC
- They must use a trading platform with international assistance
Best Platforms with Trailing Stop
Obviously, CFD Brokers are not all the same and neither are the trading platforms that allow you to use dynamic Stop Loss. But how do you choose the best ones?
First of all, a platform must be suitable for the trader who uses it and usually to choose it is necessary to do a series of tests by testing the software of the various brokers in circulation for online trading or forex trading.
But if you want advice from OnlineTradingCourse.net, which has tested and analyzed all the brokers available on the market, the fastest and most effective platforms in using the Trailing Stop are those provided by eToro, ForexTB and Trade.com.
eToro: automated Copytrading
eToro and its intuitive and practical trading platform has over 10 million users worldwide. The CONSOB and CySec license, that it has obtained, allows you to trade in complete safety.
In the eToro platform you can set the Trailing Stop on any chart but if you prefer to make automatic investments, this Broker offers a truly innovative automatic trading system: Copy Trading.
This system patented by eToro, allows you to copy the market operations of the best traders in the world (on eToro) automatically and free of charge.
To use Copy Trading you must follow these steps:
- Register for free on eToro
- In the “People” section, choose the traders to copy, based on how much they earn.
- With a click, Copy Trading will copy the operations of the chosen traders into your account.
- At that point you will get the same returns as these trading experts (in proportion to the investment made), at no additional cost.
What are these returns? Well it depends on the traders you will copy, here are some examples in a screenshot:
Click here and choose which trader to copy
Before investing money in Copy Trading or testing the Trailing Stop, you can test the platform on the free Demo account, where there is no risk, because the money is virtual.Click here to sign up for free
For more details you can read our full eToro review.
ForexTB: Trading course
ForexTB has gained great appreciation from traders because it has always tried to favor the profits of its investors by offering very useful free services.
At the base of everything is an international authorization issued by CySEC and the possibility to choose between two trading platforms, both free and with the possibility of using the Trailing Stop:
- Metatrader 4 is a platform with numerous tools available, which meets the needs of the most experienced traders.
- The web platform is simple and accessible from any browser, without making any downloads.
To make the most of the Trailing Stop, if you are new to trading, ForexTB offers you a Trading Course, considered the best on the market, which summarizes in a single ebook, the basics of technical analysis, including the methods of using Trailing Stop.Click here and download the Trading Course for free
If you want more practical support for your trading, ForexTB sends free Trading Signals to all users. These are indications studied by Trading Central that have a success rate of over 70% and can be obtained thanks to the official link below:Click here to get free trading signals
Read our ForexTB review for more information.
Trade.com: Free educational tools
Trade.com offers one of the richest trading platforms in professional tools and indicators available on the market and security is guaranteed by the CONSOB, CySec and other licenses.Try the Trade.com platform for free by clicking here
The software allows you to take advantage of the Trailing Stop in a very intuitive way but if you have little experience you can rely on the Trading Course that this Broker has created and offered for free to all its users, here’s where to download it:Download the free course by clicking here
If you already have some experience and are looking for ways to improve your preparation, Trade.com offers a series of advanced video courses, which deal with the individual topics relating to trading and technical analysis. To access the video courses for free, just use the official link below:Click here to access the video courses for free (official link)
To open a real account with Trade.com you only need 100 Euros, but to get started there is always the totally free and unlimited Demo account.Join Trade.com for free
If you want to know more, you can read our Trade.com review.
- Trailing Stop is designed to limit losses or not lose any profits gained while a trade moves favorably.
- The dynamic Stop Loss only moves if the price moves favorably, otherwise it is equal to a Stop Loss. When it moves, it goes in the same direction as the trade and never goes back.
- In practice, the Trailing Stop is a Stop Loss that remains on the heels of the stock, trying to maximize profits or reduce losses to a minimum.
- Dynamic Stop Loss can be set at a distance in pips, dollars or as a percentage of the price.
How Trailing Stop works
To understand how a Trailing Stop works it is important to first understand the meaning of a Stop Loss order.
The Stop Loss is an order set on a trading platform that tells the Broker to close a trade when the price moves against the direction of the investment made.
The Stop Loss intervenes both in the case of long (buying) and short (selling) trades and is a necessary insurance to limit losses at least when the trade is opened.
If you do Scalping you will hardly have time to move the Stop Loss and you will rarely use the dynamic one.
If, on the other hand, you use slower trading strategies such as position trading, Intraday trading or Swing trading, and the price moves in your favor, it is good practice to move the Stop Loss to guarantee you a profit.
This shift (of the Stop Loss) can be automated with the Trailing Stop.
Trailing Stop Loss
In some platforms the Trailing Stop is called Trailing Stop Loss but it is basically the same tool.
For example, if you have opened a trade by buying a stock and the price has moved favorably by 10 points, you have two possibilities:
- Put a fixed Stop Loss just above the entry price, so even in the event of a reversal, at most you will exit at par, without profits and without losses.
- Put a Trailing Stop at 10 points from the price, in this case, if the price reverses immediately, this instrument behaves exactly like the Stop Loss, but if the price rises (for example) by another 5 points before reversing, you are secure a profit of 5 points.
Trailing Stop example
Let’s take an example to clarify the operation and usefulness of this automatic tool as much as possible.
Suppose you bought XYZ company stock at a price of $ 100.
Following our trading strategy, we enter a Stop Loss below $ 80 dollars, the most significant low recorded recently.
As this is a trend following strategy we do not set a Take Profit because we want to let the profits run as much as possible.
Suppose the price moves in our favor and points to $ 110 dollars after a few days. At this point we can put a Trailing Stop at 10 dollars from the price.
Dynamic Stop Loss replaces the previous Stop Loss and two situations can occur:
- The price immediately reverses and hits the Trailing Stop, which in this case behaves exactly like a Stop Loss and, since it is 10 dollars from the price, closes the position at $ 100. We have not suffered any losses but no profit either, since it was the entry level.
- For example, the price rises up to $ 150 and the Trailing Stop chases it remaining at a distance of 10 dollars, so it is positioned at $ 140. At this point the trend reverses and hits the dynamic Stop Loss which closes the operation with a profit of $ 40.
This is obviously a very simplified example but gives a good idea of the usefulness of this tool which, if put at the correct distance from the price (it must not be inserted too close, otherwise a minimum oscillation will cause the closing of the trade) allows to obtain excellent profits.
Automated Trailing Stop
The most important feature of the Trailing Stop is the fact that it is automatic and that it always follows the price, without forcing you to stay glued to a PC screen looking at the 24-hour Forex quotes or the chart of a stock index.
A very important aspect to consider concerns the sudden fluctuations that a stock can undergo, especially in conjunction with the release of some economic news.
If you have a Trailing Stop set you will not take any risks and if by chance the movement starts with a swing in your favor before retracing, the dynamic Stop Loss will follow it quickly and will close the position with a profit that “manually” is very difficult. to be taken due to the volatility present at these particular times.
The Trailing Stop is a fundamental tool in trading strategies, especially if you are following a trend and trying to let your profits run as much as possible. In this guide we have analyzed how it works and how to set it, at this point you are ready to put into practice what you have learned.
If you have little trading experience, try the dynamic Stop Loss on the Demo account, so as not to take risks and become familiar with the instrument and the trading platform you have chosen.
Here are the official links of the free Demo accounts offered by the best trading platforms:
- Access to the eToro Demo account for free by clicking here
- Register on ForexTB and try the Demo account by clicking here
- Access to the Trade.com Demo account for free with this link
It is a dynamic Stop Loss that follows the price at a fixed distance.
It serves to limit losses and maximize trading profits.
Dynamic Stop Loss can be used in any market, thanks to CFD Brokers.
eToro and the best online trading platforms allow you to use dynamic Stop Loss safely.