Should you use a trailing stop as a Forex trader?
In this video:
00:26 Do Trailing-Stops Beneficial
01:20 Trailing- Stop Issues
04:03 Just A Quick Survey
Should you use a trailing stop as a Forex trader? Let's talk about that and more right now.
Hi Forex traders, it's Andrew Mitchem here, the Forex trading coach. Today is Friday, the 9th of October. As you can see, it's springtime here in New Zealand, and I thought it would be a great idea to get outside into the bit of fresh air, and away from the charts for this video and podcast.
Do Trailing-Stops Beneficial
I want to talk about trailing-stops. I've had an email here from Raphael, who said, “Hey, Andrew, can you make a video describing the benefits of trailing stops. I think it would make a great topic for your weekly videos.” I've had a think about that, because it's a question that I get asked quite often. I've got to be really honest with you, I'm not a fan of trailing stops myself.
I'm not saying they don't work, I'm just saying that within my own trading and the style of trading that I have, I don't use trailing stops, and I'll explain why. As a technical trader, I like to look at what's happening on the charts, and I like to have a reason for everything that I do. I like to have a reason for placing the trade, a reason for my stop loss, a reason for my profit target, etc. That, as a technical trader, gives me confidence of why I'm taking a trade.
Trailing- Stop Issues
The problem that I have with a trailing stop is, how big a trailing stop do you use?
Do you use 10 pips, 20 pips, 100 pips?
What is it that you use?
Then you come back to the problem of your trading is then determined by how many pips you make, rather than the percentages, like I talk about in terms of the way that I trade with risk and money management.
I'm not a great fan of saying, “Hey, I want to move my stop, trail it by 20 pips,” because it depends on what pair I'm trading, because different currency pairs move at different amounts. It depends on the time of day that I'd be trading. The Asian session is generally a lot slower than, let's say, the European sessions, so 20 pips doesn't really mean a great deal. If I was trading the British Pound/New Zealand Dollar (GBP/NZD), 20 pips is absolutely nothing. Yet, if I'm trading the Euro/British Pound (EUR/GBP), 20 pips is actually quite a lot, because it's a slower moving currency pair.
Again, you can see the issues with picking a trailing stop. Also, what determines 20 pips? Maybe it should be 30, maybe it should be 40? It's hard to know exactly how big a trailing stop to use.
Of course, if you use MT4 and that's probably the same with other trading platforms, is that a trailing stop will only work if you have your computer on. A hard stop loss, you can put that in and close your computer down and walk away from your charts, and your broker's server keeps that on there on their platform, whereas a trailing stop only works if your computer is actually on, and connected to the internet. If you have a virtual server, not a problem, but I'm guessing the majority of people who are trading, don't have a virtual server and they have their computer on. If your computer stops, you lose an internet connection, you close down your platform, then you lose that trailing stop figure. That becomes another issue.
For me, if I place stop loss, and my trade moves into some really good profit, let's say, and I want to protect that profit, then I'd much rather move my stop loss to a technical level. Let's say, I might be buying. I want to move my stop loss up to below the last swing low, or the candle low, or round number, or pivot point, whatever it is that I'm using as my strategy. Wherever I see a good support level, I might want to bring my stop loss up to below that last support level, to lessen my stop loss or to lock in some profit. That's a really important point about the way that I much prefer to move stop losses, rather than just use a generic, an arbitrary figure from a trailing stop. The other thing I quickly wanted to mention is, I'm putting together something for later in the year, towards the end of the year.
Just A Quick Survey
At the bottom of this video I'm going to put a link there to a quick survey. Six questions, that's all it is, it will take you no more than two minutes to fill out that survey. If you're keen on helping me to help you by offering you the right information and right products to help take your trading to the next level, just take a couple of minutes if you could, please, and just click on the link below this video and just complete that survey. What I'm aiming to put together, is going to be something really exciting to help take your own trading to that next level. I hope this video and podcast helps you.
If you have any questions like Raphael here, just send those through by email, and I can talk about those topics for you on future videos and podcasts.
Once again, this is Andrew Mitchem, The Forex Trading Coach. Have a great weekend, and I look forward to talking to you this time, next week.