Trailing Stops
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For example, if you enter a long trade in the DAX30 at 9000 points and activate a trailing stop with a distance of 20 points, the stop is always tightened as soon as the price has moved 20 points from the current stop-loss limit in favour of the trader.
In the example, the price moved about 40 pips in our direction after the entry. The trailing stop was set at a distance of 10 pips. At the high of the trade, we could theoretically have taken a profit of around 40 pips. At this point, the stop was automatically tightened to a profit of around 30 pips. Unfortunately, the price then came back and triggered the trailing stop.
Since no one knows in advance exactly how the price will develop, the trailing stop is therefore a very good tool for maximising profits by consistently tightening the stop. In this way, it is often possible to avoid taking profits too early and thus missing out on profits. This order is particularly useful when positions are already slightly up.
Take Profit Orders
A take profit order is a tool for automatically taking profits. In principle, the take-profit is a reverse stop-loss order. Instead of protecting the trader from losses, the purpose of this order is to automatically take profits when the previously defined price target is reached.
Since the take-profit, like the stop-loss, is automatic once the marks have been set, the trader does not have to sit in front of the computer and watch the markets all the time. In combination with a stop-loss order, this allows for very good money management, as the possible loss and the expected profit are already defined in advance and the expected CRV for this trade is therefore fixed.
The example shows the EUR/USD in the 15-minute chart. After the breakout of the short-term resistance, we went long at the price of 1.1388. The trade ran directly into profit. The trade went directly into profit and we were able to tighten the stop loss to 1.1390. Thus, we took the risk out of the trade. We placed the take-profit order in the area of the last high at a price of 1,1407. This allowed us to sit back and wait for the trade. A short time later, the market reached our price target and the take-profit was automatically triggered and the trade generated a profit of around 18 pips.
Trading strategy with stop-loss and trailing stop
The combination of stop-loss and trailing stop can be used well when trading trends. You try to enter a current trend at swap and first set a normal stop-loss. If the position is sufficiently profitable, you switch from the normal stop to a trailing stop. Depending on the time frame in which you are trading, the distance between the stop and the current price must of course be narrower or wider. In small time frames such as 5 or 15 minute charts, the distance of the stop should logically be smaller than in larger time frames such as 30 minutes or the H1 chart.
The larger the stop distance, the more "air" the trade has to breathe. Of course, this reduces the risk of being stopped out and missing a further continuation of the trend. On the other hand, you run the risk of giving back a larger part of your current profit if the price moves against the trader again or the trend breaks.
