How to apply a stop loss and a trailing stop at the best

Every online forex trading platform is integrated with the stop loss and the trailing stop features in order to assist forex traders to cope with certain risks related to trading. Basically, a stop loss lets you to place in advance at which price level your open position should be automatically closed in case the market moves against you.

The main advantage of the stop loss is to put a limit on the amount of loss that you as a forex trader are willing to accept. To be successful in your forex trading strategy, placing a good stop loss order is crucial, therefore, traders who do not place any stop loss at all or place it wrongly, will ruin themselves as well as their trades.

Another useful feature to be applied along with the stop loss is the trailing stop. However, you need to place the stop loss first and then proceed with the trailing stop and not the other way around. The reason is that the main objective of the trailing stop is to move the stop loss progressively in the way of the take profit target when the price of the currency moves in your favor.

This is to allow you to catch profits while at the same time let the position remains open. The first level of stop loss can not be achieved when the price turn around without your position being automatically closed first, however the trailing stop is useful to overcome this problem.

There are two kinds of trailing stop where you can place the trailing stop manually by your own or a trading platform can place it automatically. Generally, you can decide where to place the trailing stop, however, usually, manual trailing stop is placed at the top support or resistance levels, under the former change lows or over the former change highs.

One of the most well known methods to apply a stop loss is to establish a fixed amount of pips to trace the price of the market which you can do it on most trading platforms.

However, sometimes a serious confusion about trailing stop can make traders especially the beginning traders to apply it not in an appropriate way which cause them to lose money and they wonder how that is possible.

Trailing stop is regularly applied by the traders to increase profits and at the same time to decrease losses. However, there is also disadvantage of using trailing stop. Trailing stop is usually causes the profit potential to becomes lower than you suppose to make during your winning trade.

How a trailing stop affects the amount of money you are going to make during the winning trade? Well, as we all know, the forex market is volatile and we hardly ever seen any currency price movement trend lasts for a long time. They can go back over many times during major moves within a day. And there will be vast noise and lots of people are making trading orders which more or less could affect the trends too.

When a substantial trend reversal is likely to happen, it is not a surprise for you to see that your stop loss will be activated immediately before the previous currency price trend which was in your favor is going to resume. This pre set action can restrict your potential for profit and you end up with a small profit amount.

However, bear in mind that trailing stop has it own benefits and every trader should apply it in their forex trading strategy. You must make sure you know how to use a trailing stop in an appropriate way and one of the excellent ways in using it is to place your trailing stop only one time in one trade. Then when the currency price trend goes in your favor, you can move your stop loss manually to your entry price. So, by doing this way in any case and regardless of any event, you will not incur any loss.

And when you are sure that the prices go on to up ward trend, you should try not to shift your trailing stop any further as it only restricting your profit potential. However, even tough this method can maximize your profit, but you need to always alert on what is happening on the forex market which means you must always be in front of your monitor screen. It can be a tough thing to do if you are a part time forex trader.

And as for the day traders, they usually use a dissimilar method when they apply the stop loss and trailing stop than those traders who are trading for a longer period of time. Day traders are seeking for fast profits which derived from small price trend movements in the forex market.