The source of the following content: Wechat public number Hui classroom
Stop loss is a topic we are very familiar with. There are more than 6 trillion trading orders in the foreign exchange market every day. If there is no stop loss escort for each order, you will probably have to queue up to go to the rooftop.
Common stop loss strategies include fixed stop loss and trailing stop loss. Which one do you use?
We know that most people want to make as much profit as possible. If the market develops in the direction we predicted, but traders leave the market prematurely because of stop loss, it will be a pity!
Trailing stops can both protect capital and take full advantage of strong trends.
But not all forms are suitable for trailing stop loss. Today we will take a specific example to see the advantages and disadvantages of trailing stop loss and when to use it.
Trailing stops can undoubtedly help to manage positions better than fixed stops.
For example, in EUR/USD trading, a diamond-shaped reversal pattern is formed at the position shown in the figure below. We predict that the market price will show a downward trend after this pattern.
At this time, you can start an empty order and set a stop loss. Because the market price may continue the original trend or continue to consolidate, we eliminate some potential risks through stop loss orders.
However, when the market price presents a long body black candle, there may be a strong downward trend, then the method of trailing stop loss can be used. When the price breaks out of the diamond pattern, the first stop loss is placed at mark 1, and then the stop loss is moved after every other candlestick. That is, move the stop loss order to the highest price of the previous two candles.
For example, if the market price breaks through the 4th candle, the trailing stop loss is at mark 2. The stop loss position closely follows the market price, and once the price reverses, the stop loss can be stopped in a timely manner.
If you use a fixed stop loss, it doesn't have to be so troublesome, but it can't maximize the profit accordingly.
As you can see from the examples above, the main advantage of trailing stops is the ability to take advantage of trends. After the bearish breakout in the above case, the downtrend continues until the 9th trading day, and all the trader needs to do is wait for the end of each trading day to move the stop loss to the next level. Trailing stop loss can prevent the profits of the protected trading account from being eaten back.
Relatively speaking, because the market cannot always show a clear market trend like the above case, on the contrary, there is a probability of more than 60% that the market is in a state of sideways adjustment. So it is invalid to use trailing stop loss at this time.
And because the market fluctuates in real time, all stop loss points cannot be accurately executed due to slippage.
In general, some disadvantages of trailing stop loss are also unavoidable by fixed stop loss, so its advantages in the trending market outweigh its disadvantages, and it is a good fund management tool to use well. How to implement the specific trailing stop loss, you can refer to the internationally recognized professional traders' trailing stop loss strategy! https://mp.weixin.qq.com/s/HXIxkhpT9nOb9-SJ7eW7Qg This historical article.
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