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Moving Stop Losses – the Good and the Bad

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    Today we’re going to talk about Stop Losses, specifically about moving them. The way it usually happens is like this: you open a trade, you set a stop loss to limit your exposure to the market, and then you see the price moving against you, inching closer and closer to that stop loss. But you know it will surely turn around any second now, and you don’t want to close the trade in the red – sound familiar? If it does, you might want to rethink this approach. 

    One of the most important things in trading is discipline, and the lack of it is usually what causes traders to blow up when emotions get the better of them. What this means in practice is that when you make a decision, stick to it. The price may go up and you will miss out on an opportunity to recover your losses, or it may swing down and cost you a lot more. But like most things in trading, the important question is what the effect is on average. We went ahead and looked at the database of live clients – and it’s not looking good for those who move their Stop Loss down. 

    As you can see, as a general rule, the more you move the Stop Loss down, the less profitable your trades are – in fact, over 4x less compared to people who don’t do this. The reason is simple: when the price doesn’t bounce back and bursts through that support or resistance you relied on, you lose big. That’s exactly the type of scenario a Stop Loss is designed to shield you from, and it’s even better illustrated when we look not at the average profit per lot, but at bad losses – worst 5% of trades:

    The effect is even more pronounced here – a 6x increase in losses for people who move their Stop Loss down often.


    Does this mean that moving stop losses is always bad? Well, almost. What if you moved it in the opposite direction? If you’re a more experienced trader, you’re familiar with the concept of Trailing Stop. 

    Trailing Stop involves moving up the Stop Loss in the direction of profit if the trade is going your way, having the Stop Loss “trail” the price at a distance you set (e.g. 20 pips), but keeping the Stop Loss in place when the trade starts going in the opposite direction so that the Stop Loss can still be triggered.

    It’s better to look at a simple visualization of how it works:

    What this does is that it “locks in” profit, so that even if you walked away from the terminal during an intraday spike in the price, you will still reap most of the profit. It’s a good alternative to a Take Profit that does not limit your potential gains.

    Let’s look at what this means in practice for our live clients:

    As you can see, it’s the difference between being in the red and winning money on average. It can also give traders more peace of mind and reduce stress because once the trade turns a profit, it’s locked in – you know that you will gain money on that trade, so you can relax and watch the profit increase without worrying that the price might crash. Because if it does, and your trailing stop is set at 30 pips, you will only lose a maximum of 30 pips from the high point. 

    Because the potential win is unlimited, the effect of the Trailing Stop on the top 5% of trades is even more pronounced:

    Traders who use Trailing Stop often have their top 5% trades bringing in 5x more money on average.

    Now, here’s how to enable Trailing Stop in your MT4 terminal:

    After placing an order, right-click on the order price line and choose Trailing Stop, then choose the distance you want the Stop to trail by, in pips:

   And that’s it. One very important thing to keep in mind is that unlike regular Stop Loss and Take Profit, Trailing Stop is not server-side, so you have to have the terminal running for it to update the Stop Loss.


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