#327: Should you use Trailing Stops or Fixed Stops?

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Podcast: Should you use Trailing Stops or Fixed Stops? In this video: 00:22 – Two parts to this week’s podcast 00:41 – Trailing stops and should you use them? 01:13 – How should you use a trailing stop? 02:35 – I don’t use trailing stops 03:45 – Look to move your stop loss or take partial profit 05:46 – Trading for 10-30 minutes a day while on holiday – follow me Should you use trailing stops as a forex trader? Let's talk about that and more right now. Hi, traders. Andrew Mitchem here from The Forex Trading Coach with video and podcast number 327. Two parts to this week’s podcast Two parts to the video and podcast today. The first is a question about trailing stops. The second is about a great opportunity I'm going to give you to follow me while I'm away overseas on holiday for three weeks, trading in under 30 minutes a day. More about that shortly. Let's get back to part one about trailing stops. Trailing stops and should you use them? So, the question's just been received today from a trader. He's not a client, but he's a guy that follows me on podcasts called Trevor from the UK, and Trevor asked the question ... He said, "Andrew, trailing stops attempting to use as a protective factor to lock in profit in case of reversals; however, they can be taken out in strong retracements. Do you use them?" So that's a good question. The short answer is, "No, I do not use trailing stops," but let's discuss them and their merits or otherwise. How should you use a trailing stop? So, a lot of people like the thought of a trailing stop because you think that it's going to keep following your trade as you keep making profit and locking in more and more of the trade and, in theory, giving you a better return. That's the theory. There's a couple of practical issues that you need to be aware of. I'm not sure about other trading platforms, but certainly if you use the MT4, MetaTrader 4 platform, if you use a trailing stop, you actually have to have your computer on. Now, if you have your platform open on a virtual server, that's fine, but most people probably would just have it on their desktop or their laptop. If you use a trailing stop and close your chance down, then the trailing stop will not be honoured because it sits on your computer. A normal hard stop or a profit target sits with your broker, but a trailing stock does not. So, there's a factor that you need to be aware of and probably a lot of people don't know that. The other thing is, from a trading point of view, is how big a trailing stop to use and when do you start to use it? Where do you put it? When do you introduce it? Does it depend on the currency pair or the timeframe chart or the volatility in the market or flatness in the market right now? If you put a 20 pip trailing stock, is that the same on the euro pound as it would be on the pound New Zealand? One very slow, one very fast. I don’t use trailing stops All these type of things you need to consider. So, I don't use trailing stops for those reasons. It's too much of a guess. I like to have a little bit more certainty in my trading, and so, to me, the initial stop loss needs to be placed at a protected level for a reason. Don't just pick 30 pips because someone said so. Pick the level that the trade needs to be ... the stop loss needs to be at to protect the individual trade. One of the reasons why I love trading on individual candle shapes and patterns is because if that is a relatively large candle, I can then afford to have a slightly bigger stop loss, and therefore, my profit targets bigger and the reward to risk becomes good as well. If it's a smaller candle, then generally, I've got a tighter stop loss and the smaller profit target because it's reflecting the current market conditions, and reward to risk is so important. So, you can't have a stop loss that's so massive that your profit target needs to be ridiculously big and unlikely to be hit. Likewise,