At some stage of their trading career, most traders will experience the market unexpectedly reversing course while they’re away from their computer, and this could result in them losing a hefty slice of profit on a good trade. The Trailing Stop Loss tool offered by Olymp Trade can fortunately stop this from happening.
Trailing Stop Loss Explained
This tool works pretty much the same as the normal stop loss tool that can be used with trading positions that are open. Its function is to prevent traders from making a loss on a trade higher than a specified amount, if the price of the asset suddenly starts moving in the wrong direction.
Although the five year tournament’s participants were recently the first to get access to this tool when they achieved a certain level, more clients will soon be given access to this feature.
The biggest difference between the trailing stop loss and a normal stop loss is that it allows traders to “lock in” profits already generated by a good trade without needing to close the trade or using the “take profit” feature.
It also allows traders to leave a trading session without having to worry that they will lose profits if the market changes unexpected while they’re not watching. A trailing stop loss will move together with the asset’s price that is being traded and it can be used with both Down (Sell) and Up (Buy) trades on the Forex section of Olymp Trade’s platform.
Examples:
A trade on Gold is opened at $1340 per ounce with a $150 Buy order. A trailing stop loss is set at 10% of the trade amount ($15). Although Gold’s price starts rising as predicted to $1365, you don’t want to exit the trade as you believe it could still increase by much more. The trailing stop loss follows the price increase and will close the position automatically if it loses $15 from the price of $1365.
This is how a trailing stop loss can help you rest easy. If the price carries on going up, the position is safe as it is still open. As an example, presume Gold reaches $1400, but then reverses and drops back to $1350. The trailing stop loss will sell the position at $1385, thus preserving the profits without you having to be aware of what was happening.
The Principle Is the Same with Sell (Down) Positions
A Sell position for Gold is opened at $1340 with a $150 trade. A $15 trailing stop loss is put on the position. Gold’s price drops as predicted to $1315, but then reverses to $1340 while you’re not at your computer.
The trailing stop loss will close the position at $1330, which will preserve some of the profit despite the quick price reversal.
Extra Tricks
There are a few other things to be aware of when you want to use a trailing stop loss.
- Enter the trailing stop loss as soon as you open the trade —investors often mistakenly only set a trailing stop loss when they are leaving their computers or are busy with something else. With many different positions open at the same time, it is easy to overlook setting trailing stop losses for all of them.
- Pick the right size — if a trailing stop loss is too small, it will close out the trade even if the price of an asset changes by a small amount. A good rule of thumb is 10 to 20% of the trade amount.
Even if you are actively monitoring your trades, if you have opened many positions in various markets, it is easy to make a loss when a price suddenly reverses because you were not fast enough to see it and react in time.
Rather safe than sorry
In order to take advantage of the tool, make sure you have turned on the Take Profit and Stop Loss feature in the platform’s settings menu.
Summary
Olymp Trade provides its clients with top of the range resources and professional tools and this tool is only but one powerful example.
Minimize your losses and make more profits by taking advantage of the trailing stop loss tool.