Trailing is a risk and money management tactic which the traders can use in their attempts of either minimizing the chances of having a big losing order or locking more pips amid a profitable running order.
This tactic can bring great results once a trader has carried out the necessary steps and procedures during implementation, and is broken down into two criteria or parameters, the Stop-Start and the Stop-Distance.
Trailing Stop-Start & Stop-Distance
The first criterion, the Stop-Start, is triggered when the order moves to the trader’s favor by a predetermined number of pips.
The second criterion, the Stop-Distance, is activated once the order moves more in favor of the trader again at a predefined number of pips.
Let’s see the example below:
- Stop-Start: 10 pips
- Stop-Distance: 5 pips
- Stop-Loss: 30 pips
Assuming that we bought the EUR/USD at the price of 1.3000.
In the scenario where the price moves to 1.3010 + 1 (1.3011), then the Trailing Stop-Start of 10 pips will be activated and so will the Trailing Stop-Distance of 5 pips, thus minimizing or bringing the Stop-Loss from -30 pips to +6 pips (1.2970 to 1.3006). In this condition, if the order turns against the trader, whatever the case, he or she would gain 6 pips instead of losing 30 pips as per the initial Stop-Loss criterion.