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Please What's a trailing stop?

Discussion in 'Beginners Bootcamp' started by hallhayz, Oct 6, 2007.

  1. hallhayz

    hallhayz Recruit

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    PLease I'm so new on the metatrader platform and I'll like somebody to explain what a trailing stop means. Also I'll like you to explain what the difference is betweem a market order and a pending order.Thanks.
     
  2. 3BlackCrows

    3BlackCrows Corporal

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    Hi Hallhays,

    I'll try to explain as easily as possible what both are.

    1st the Trailing Stop.

    You've heard the expression 'Ride your profits and cut your losses'?

    Well that's what a Trailing Stop does.

    It's like an automatically shifting stop.

    I'll explain in terms of a long trade.

    Let's say you place a long trade on a pair at the price of 1.3510 and you set a Trailing Stop for say 10 pips which means it will follow price 10 pips away.

    Now lets say price goes up to 1.3550 then stops and retraces a bit.

    When it's at 1.3550 your Trailing Stop has followed it up so that in essence your stop is 10 pips away at 1.3540.

    If price retraces back to 1.3539, you will be stopped out but you would have still made 30 Pips (1.3510 - 1.3540)

    It's simply a way to lock in profits in case price turns against you while you are not watching.

    The disadvantage of a trailing stop is that price may retrace on the above trade to say 1.3530 then find it's second wind and move up even higher meaning you cant cash in on that extra profit potential.

    Ok, now onto Market orders vs Pending Orders? (I assume by Pending Orders you mean Limit Orders)

    A Market Order means you will be filled at the current price shown. For a long trade it will be the current Ask Price and for a short trade it will be the current Bid price.

    This allows you to capture as much profit as possible on a winning trade while keeping losses to a minimum due to the fact your stop is closer to the price where you got in.

    A Limit Order is basically stating what price you are willing to pay for a certain currency.

    For example if price is say 1.3540 and you believe that price is going to head higher, you would put a Limit Order in to buy for say 1.3545 to go long.

    That way if price goes keeps moving lower you would have averted a potentially losing trade but if it indeed starts reversing and moving higher you will be filled and will be in a profitable trade.

    The disadvantages of both of these order types are:

    Market Orders:
    During fast moving market times (such as US news releases) price can move rapidly in one direction or the other within seconds (sometimes as much as 100 pips).

    Market Orders are normally always delayed during these times so you will find that if you enter a Market Order trying to get in on the spike, your order will be filled near the very top of the spike increasing the likelyhood of extremely large losses or missed profit potential when it inevitably retraces.

    Also sometimes during these times price will spike in the wrong direction to start with then move in the opposite direction so if you placed the order at the beginning of the 1st spike and got filled near the top, you will lose a lot of money when it goes in the opposite direction.

    Therefore Market Orders are not suggested during newstime.

    Also during normal market hours, your order can be delayed a few seconds meaning you get filled 2-3 pips away from intended price. Some brokers such as EFX allow you to control the price vs speed so you can choose whether you want the best price or the quickest speed in the execution of your order

    Limit Orders:
    Some people like to enter Limit Orders at a price where they think the very top or bottom price will travel to before reversing.

    However often price wont reach that level therefore they wont get filled and will miss out on a profitable trade.

    Also Limit Orders aren't always gauranteed such as when price gaps it very quickly in the direction you want within seconds but completely passes your Limit Order.

    Because price moved so quickly, there wasn't enough time to fill your order so you miss out again.

    As an aside, this is the same reason that no broker will ever gaurantee stops

    Hope this helps - Happy Trading! :)
     
  3. RahmanSL

    RahmanSL Major

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    Hi 3BlackCrows,

    Exactly the question I was asking in another post….and very well explained too. Thanks!

    Now, how exactly do I set a “trailing Stop” on my MT4 Demo account platform with Tadawul which offers this service?
     
  4. Lhar_fpa

    Lhar_fpa Private, 1st Class

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    thanks for the detailed explanation i was always a bit hazy about that one!!
     
  5. Eric Alyea

    Eric Alyea Master Sergeant

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    “Market order”

    Lhar_fpa hey bud, long time no see.
    I got a break through for you. I had some trader’s come to my house and train me. I want you to work with me to see if I learned it correctly. Are you up to that???
    1st this is new and I don’t know if I am crossing the commercial line or not. I pray for editing some times. This is what I have been doing...
    http://www.forexpeacearmy.com/forex-forum/intensive-reviews/8442-duellatorus-review-eric-alyea.html
    The main two things I learned to use was the (and for me, {depending on your system}
    F2 - “Market order”
    F3 - “Pending order”
    In a “nut shell” everybody is scared to risk real money.
    The only thing worse than that is the fear of the not using the practice button.
    There is “NO ONE” there. You hit the wrong button and you don’t know how to the get back to the screen before you made that ..... ???? .... “BUTTON PUSH”.....

    I have to go to the VA Hospital tomorrow.
    But, I will finish writing what I learned about, "making friends" with the "Market Order" button/window.

    Glad to see you stuck with it
     
    #5 Eric Alyea, Feb 23, 2010
    Last edited: Feb 23, 2010

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