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What is trailing stop mean on forex?

Trailing stop is a useful tool for traders in the forex market that can help them to manage their risk by allowing them to protect their profits while letting their trades run. It is a stop loss order that is set at a certain distance away from the market price, and it follows the market price as it moves in the trader’s favor. This means that if the market price moves up, the trailing stop will move up with it, but if the market price moves down, the trailing stop will remain in place until the market hits it.

The basic concept of a trailing stop is to protect a trader’s profits while minimizing their risk. For example, suppose a trader buys a currency pair at 1.2000 and sets a trailing stop of 50 pips. As the market price moves up, the trailing stop will move up with it, but it will always remain 50 pips away from the current market price. So, if the market price reaches 1.2050, the trailing stop will be at 1.2000, and if the market price then drops to 1.2005, the trailing stop will move down to 1.1955. This means that if the market suddenly turns against the trader, the trailing stop will protect their profits by closing out the trade at a predetermined level.

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Trailing stops are particularly useful in volatile markets, where price movements can be sudden and unpredictable. They can help traders to avoid sudden losses and protect their profits by automatically closing out a trade if the market suddenly turns against them. Trailing stops are also useful for traders who want to take advantage of trends in the market by letting their trades run for longer periods of time. By using a trailing stop, traders can lock in their profits as the market moves in their favor, while still giving the trade room to run.

There are two types of trailing stops that traders can use: fixed and dynamic. Fixed trailing stops are set at a fixed distance from the market price, and they do not change until the market hits them. Dynamic trailing stops, on the other hand, are set at a certain percentage or dollar amount away from the market price, and they move up or down with the market as it moves in the trader’s favor. Dynamic trailing stops are more flexible than fixed trailing stops, and they can help traders to capture more profits while minimizing their risk.

Trailing stops can be set using various methods, including the MT4 platform, which is a popular trading platform used by many forex traders. To set a trailing stop in MT4, traders can right-click on an open position and select “Trailing Stop.” They can then choose the distance they want the trailing stop to be from the market price, and the trailing stop will be automatically activated.

In conclusion, trailing stops are a useful tool for forex traders that can help them to protect their profits while minimizing their risk. They are particularly useful in volatile markets where sudden price movements can be unpredictable. Traders can use fixed or dynamic trailing stops to lock in their profits as the market moves in their favor, while still giving their trades room to run. Trailing stops can be set using various methods, including the MT4 platform, which is a popular trading platform used by many forex traders.

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