The Forex Trailing Stop With MT4 Protects You From Heavy Losses

A forex trailing stop is a stop that you can specify in an expert advisor for the Metatrader 4 platform. You probably have guessed what it is right away from the name itself. The forex trailing stop is a stop loss that moves according to the current prices on the forex market.

Now what is a stop loss? It is a marker that you can determine that makes your MT4 expert advisor autopilot software (EA) to exit the forex trade when things are not in your favor. This action keeps you from risking an important loss.

But before you rush to use and apply a forex trailing stop, you have to consider a few things. Imagine a mechanical device like a toothed ratchet wheel that can only move in one direction; it can only go up, not down. This is similar. When you are in profit, it follows behind, moving up by the same number of pips that the market moved. However, when the market falls, it does not move anymore, it stays right where it is.

So, you can have a market that rises and rises and you keep making a lot of profits. But as soon as the market starts falling a little bit, the stop loss comes into action and exits your trade with any amount of profits or losses you made up to that point.

How to use the forex trailing stop example

Let's say that you open a trade to go long. Obviously when you open this forex trade you are at point zero: Zero pips profit or loss. For the sake of the example, let's imagine that you specified the forex trailing stop at minus 30 pips.

If you are not lucky that day and the forex market falls non-stop, the stop loss you set comes into effect and closes the trade for you at 30 pips down. On the other hand, if the market rises, the stop loss rises along with it.

Therefore, when the market is 20 pips in your favor, your stop loss will have moved to 30 pips below that point. If the market starts falling and the price hits the stop, the Expert Advisor EA would exit your trade for you with a small loss of only 10 pips.

If the market rises to 40, the stop moves up to 10 above zero. In this case, you have turned a guaranteed profit of 10 pips. Actually, when the market rises by the same number of pips as the forex trailing stop that you set —in our example 30— you cannot suffer any loss.

The role of the automatic Expert Advisor EA

Granted, you could monitor the forex market yourself without the assistance of an automatic Expert Advisor EA and manage these forex strategies on your own. However, you would risk neglecting to exit at the right point and taking a larger loss that you thought. Or perhaps you would have to exit a promising trade while the market was still rising because you have to eat, sleep or perform other daily tasks.

Thus, if you can leave MT4 running, an Expert Advisor EA on autopilot can relieve a great deal of the stress that you would usually have to suffer in these circumstances.

The main factor you have to ponder thoroughly before deciding where to place the forex trailing stop is the natural volatility of the forex market. While you obviously want to avoid large losses, you do not want your stop loss to trigger at every little random fluctuation of the forex market.

If you set the forex trailing stop much too close to the starting price, it would be triggered so often that in the end you would probably suffer small losses all the time.