Should you use Trailing Stops or Fixed Stops?
In this video:
00:22 – Two parts to this week’s podcast
00:41 – Trailing stops and should you use them?
01:13 – How should you use a trailing stop?
02:35 – I don’t use trailing stops
03:45 – Look to move your stop loss or take partial profit
05:46 – Trading for 10-30 minutes a day while on holiday – follow me
Should you use trailing stops as a forex trader? Let’s talk about that and more right now.
Hi, traders. Andrew Mitchem here from The Forex Trading Coach with video and podcast number 327.
Two parts to this week’s podcast
Two parts to the video and podcast today. The first is a question about trailing stops. The second is about a great opportunity I’m going to give you to follow me while I’m away overseas on holiday for three weeks, trading in under 30 minutes a day. More about that shortly. Let’s get back to part one about trailing stops.
Trailing stops and should you use them?
So, the question’s just been received today from a trader. He’s not a client, but he’s a guy that follows me on podcasts called Trevor from the UK, and Trevor asked the question … He said, “Andrew, trailing stops attempting to use as a protective factor to lock in profit in case of reversals; however, they can be taken out in strong retracements. Do you use them?” So that’s a good question. The short answer is, “No, I do not use trailing stops,” but let’s discuss them and their merits or otherwise.
How should you use a trailing stop?
So, a lot of people like the thought of a trailing stop because you think that it’s going to keep following your trade as you keep making profit and locking in more and more of the trade and, in theory, giving you a better return. That’s the theory. There’s a couple of practical issues that you need to be aware of. I’m not sure about other trading platforms, but certainly if you use the MT4, MetaTrader 4 platform, if you use a trailing stop, you actually have to have your computer on. Now, if you have your platform open on a virtual server, that’s fine, but most people probably would just have it on their desktop or their laptop.
If you use a trailing stop and close your chance down, then the trailing stop will not be honoured because it sits on your computer. A normal hard stop or a profit target sits with your broker, but a trailing stock does not. So, there’s a factor that you need to be aware of and probably a lot of people don’t know that. The other thing is, from a trading point of view, is how big a trailing stop to use and when do you start to use it? Where do you put it? When do you introduce it? Does it depend on the currency pair or the timeframe chart or the volatility in the market or flatness in the market right now? If you put a 20 pip trailing stock, is that the same on the euro pound as it would be on the pound New Zealand? One very slow, one very fast.
I don’t use trailing stops
All these type of things you need to consider. So, I don’t use trailing stops for those reasons. It’s too much of a guess. I like to have a little bit more certainty in my trading, and so, to me, the initial stop loss needs to be placed at a protected level for a reason. Don’t just pick 30 pips because someone said so. Pick the level that the trade needs to be … the stop loss needs to be at to protect the individual trade.
One of the reasons why I love trading on individual candle shapes and patterns is because if that is a relatively large candle, I can then afford to have a slightly bigger stop loss, and therefore, my profit targets bigger and the reward to risk becomes good as well. If it’s a smaller candle, then generally, I’ve got a tighter stop loss and the smaller profit target because it’s reflecting the current market conditions, and reward to risk is so important. So, you can’t have a stop loss that’s so massive that your profit target needs to be ridiculously big and unlikely to be hit. Likewise, you can’t have a massive stop loss and a tiny profit because your reward the risk is all out of sync. So, that’s, again, comes back to another subject, which is why I trade candles.
Look to move your stop loss or take partial profit
But going back to the stop loss issue, once your trade starts moving into profit, you’ve got a number of things you can do. If you wanted to move your stop loss, I prefer to move it … Let’s say you’re taking a sell trade. I prefer to move the stop loss down as the trade gets into some profit, but I’m moving it to fixed levels, like I’m using support and resistance levels or ran numbers, previous highs, those types of things to protect that stop as I keep moving it down on my sell trade, assuming that the price keeps falling down.
The other thing you could do is if you see on your sell trade a potential reversal and looks like the pair’s moving back up, that could be the opportunity to say, “I’m going to close part of my trade,” or even all of it depending on what you have as your trading plan, but don’t forget that partial closing of a trade is just as effective as moving a stop loss in many ways because you’re locking in some profit and you have a smaller amount exposed only if you see, potentially, the trade might pull back against you. So, there’s a number of ways of doing it. So, you can either move your stop loss to a set level and keep moving it, all of it, as the trade keeps going in your favour or you could partially close parts of the trade for profit. Either way … It depends on what you prefer as a trader.
But going back to trailing stops, I don’t like them personally. I find them very difficult to use and it becomes too emotional and you’re taking a stop loss and for a reason is where it should be. But when you start trailing it, it’s more of a guess, more of a gamble. You could get a price spike or a news announcement accounts back and stops you out, whereas in reality, your normal fixed stop would not have been stopped at.
So, Trevor, the answer is I don’t use them, but there’s certainly other ways that you can lock in some profit and protect your trade in more of a technical trading sense than just a random number that’s trailing your profit. So, that’s the trailing stock.
Trading for 10-30 minutes a day while on holiday – follow me
The second part that I want to mention is a on Monday the 8th of July, myself and my family were heading overseas to Europe, over to England and also to France for three weeks. Now, during that time, I’m going to be trading just the daily and the weekly charts and I’m going to be making some videos recording what I’m doing and showing you how you can trade and travel. So, I’ll be trading in under 30 minutes each day. Generally, it was going to be 10 minutes per day, but I’m saying under 30 minutes per day and that’s it.
If you’d like to follow me, and I’m going to be sharing with you the trades that I’m taking and the results of those trades, whether they be good or bad, I’m taking those trades. I’ll be sharing those trades with you and just sharing with you parts of the trip and how you can trade in under 30 minutes a day. If that’s something you’d like to follow me on the journey over the next few weeks, then I’m going to put a link below this video for you to sign up and show your interest in being updated on that journey.
So, whether you’re just wanting to know how to trade in under 30 minutes a day so you can continue your normal life and work and family, et cetera, then definitely sign up. If you’re interested in trading and travelling and spending less than 30 minutes per day and trading full-time at the same time, then this is definitely something you need to register. So, find the link somewhere on this page and I’ll update you next week and when we start our family holiday.
So, once again, this is Andrew Mitchem from The Forex Trading Coach. I’ll see you this time next week. Bye for now.
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