Forex trading can be a risky business, and no trader wants to lose their hard-earned money. That’s why traders use stop losses to minimize their losses and protect their profits. A stop loss is an order that automatically closes a trade at a predetermined price, preventing further losses if the market moves against the trader.
One type of stop loss that traders use is the trailing stop loss. A trailing stop loss is a type of stop loss that moves with the market price, allowing traders to lock in profits while limiting their losses. In this article, we will discuss how to use multiple trailing stop losses in forex.
What is a Trailing Stop Loss?
A trailing stop loss is a type of stop loss that follows the market price at a fixed distance. When the market moves in favor of the trade, the trailing stop loss moves closer to the market price, allowing traders to lock in profits. On the other hand, when the market moves against the trade, the trailing stop loss remains fixed, limiting the trader’s losses.
For example, if a trader sets a trailing stop loss at 50 pips, and they enter a long position at 1.1000, their trailing stop loss will be at 1.0950. If the market moves in favor of the trade and reaches 1.1050, the trailing stop loss will move up to 1.1000, locking in a profit of 50 pips. If the market then moves against the trader and reaches 1.0975, the trailing stop loss will remain at 1.1000, limiting the loss to 25 pips.
How to Use Multiple Trailing Stop Losses in Forex
Using multiple trailing stop losses in forex involves setting multiple stop loss orders at different distances from the market price. The idea behind this strategy is to lock in profits at different levels while limiting losses.
Here are the steps to follow when using multiple trailing stop losses in forex:
Step 1: Determine the Entry Price
The first step is to determine the entry price of the trade. This is the price at which the trader enters the market. It’s important to have a clear entry strategy before entering a trade.
Step 2: Set the First Trailing Stop Loss
The next step is to set the first trailing stop loss. This should be at a reasonable distance from the entry price, depending on the trader’s risk tolerance and the volatility of the market. A good rule of thumb is to set the first trailing stop loss at a distance of 1 to 2 times the average daily range (ADR) of the currency pair.
Step 3: Set the Second Trailing Stop Loss
Once the first trailing stop loss is set, the trader can then set the second trailing stop loss at a closer distance to the market price. This allows the trader to lock in profits at a higher level while still limiting their losses.
Step 4: Set the Third Trailing Stop Loss
The third trailing stop loss should be set even closer to the market price than the second trailing stop loss. This allows the trader to lock in more profits while still limiting their losses.
Step 5: Monitor the Trade
Once all the trailing stop losses are set, the trader should monitor the trade closely. If the market moves in favor of the trade, the trailing stop losses will move up, locking in profits at different levels. If the market moves against the trade, the trailing stop losses will limit the losses at different levels.
Conclusion
Using multiple trailing stop losses in forex is a powerful strategy that allows traders to lock in profits at different levels while limiting their losses. However, it’s important to remember that no strategy is foolproof, and traders should always have a clear risk management plan in place. By following these steps, traders can use multiple trailing stop losses to protect their profits and minimize their losses.
