Trailing Stop Loss

Deciding when to exit a trade is probably even more important than finding an appropriate entry point. Emotions can influence in a negative way your decision to exit a trade because sometimes instead of exiting a trade for a small loss you start changing your stop loss orders to let the trade run hoping price will revert and get you to break even or maybe even in profit zone.Sometimes you may get lucky and turn a losing trade into a profitable trade but this is the worst thing that could happen to you because you will develope a "skill" that in the end will be devastating for your balance.On the other hand you may exit your profitable trades to soon fearing that your pips will vanish.This is where Trailing Stop comes into picture. Many forex traders are using trailing stops to exit their trades because if used correctly can improove your overall forex performance. A trailling stop is a stop loss order in which the stop loss is placed at a fixed number of pips bellow the market price so the stop loss changes with the price. Take for example a long trade. If the price rises the stop loss rises accordingly but if the price is falling the stop loss doesn't move.The advantage of this technique is that you are putting a limit on your losses without limiting your gains. Be carefull when you choose your forex broker because not all forex platforms allow automated trailing stop losses. Of course you can allways trail your stop loss manually according to a rule you set but this is not very productive and requires monitoring your charts for long periods of time if you are an intraday trader.Position traders or long term forex traders usually trail their stop loss manually. One trader for example can adjust his stop loss on a long trade below last 3 days low. This can keep you in a trade for a long time and get you the most of that move.Parabolic SAR(Stop and Reverse) is a great indicator to trail your stop loss. Developed by J. Welles Wilder this indicator works best in trending markets.