trailing STOP LOSS The trailing stop loss is a little different. It attempts to move up (or down depending on how you use it) your stop level in an effort to protect your profits. It achieves this by having two new properties on the order called the distance to market and trailing Step.
In our example chart you can see how this works. Eventually the price goes through our stop level and our trade would have been triggered. The result is that not only do we protect our initial investment but we also manage to keep a good proportion of the profits.
Put simply every time the market moves X points (either up or down but not both ways), the trailing stop level will be amended to Y points below the current market price.
Its important to work out appropriate distances to market and trailing steps for these types of order. For example it´s no good placing your stop level too close or too far from market. A good way of determining your levels is to use the AVERAGE TRUE RANGE indicator on a chart.
So, as an example, the initial logic statement for our trailing stop loss would be:
T r a i l i n g S to p L o s s
SET TRAILING STOP TO SELL 5,000 AT MARKET WITH DISTANCE TO MARKET $0.30, TRAILING STEP $0.50 Which is then interpreted as, place a stop loss at $0.30 below the current market price and then each time the price moves up $0.50 move the stop level to $0.30 below the current price.
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