As you all know that there is always a big risk of any trade that is placed into any open market. The novice traders of the market manage this risk by one methodology, whereas, the professional and skilled traders of the market adopt the totally different method.
There has always been a specific difference between both stakeholders. In the markets various technical indicators like, ‘Price Channels’, ‘ATR’ and PSAR are being used for managing risk , but in this article I am going to highlight a new way of managing risk . It is ‘Fixed Trailing Stops’. These ‘Fixed Trailing Stops’ are used to capitalize on to continued momentum in the trending markets.
Purpose of Fixed Trailing Stops
The ‘Fixed Trailing Stops’ have particularly designed for advancing a step forward a particular amount of pips when a position gets moved in your own favor. This ‘Fixed Trailing Stop’ could be very beneficial in the trending markets. It helps you for locking in profits on a broaden move. How work these ‘Fixed Trailing Stops?
Function of FIxed Trailing Stops
For explaining the functionality of ‘Fixed Trailing Stops’ I take an example of a currency pair USD v/s CAD with multiple lots. I will explain you how can ‘Fixed Trailing Stops’ work in your favor.
In the example chart a currency pair USDCAD has been entered to sell at 1.0308. This entry has been placed with 50 pips stop, at 1.0308 price levels, along with a ‘Fixed Trailing Stops’ to 50.
An entry for buying at 1.0208 levels has been placed as well, for balancing half of the position. What would happen now?
What Would Occur Now
If the currency pair USDCAD moves in your favor as per plan. Then look at your entry order .In case price touches at the price level of 1.0208 your first entry order for buying will be executed, because the order was set for buying back half of your net position. It means if your two trades’ 100k total, then your entry should be placed to offset at 50k.
The second part of the order will be your ‘Fixed Trailing Stop’. Suppose your trade moves in your favor by 50 pips, this will move your stop on your remaining position at 1.0258 levels. If the trade has been in your favor, then this order has a potential to trail further. Every time your currency pairs move 50 pips, your ‘Fixed Trailing Stop’ would move forward and continuing to lock with in this additional amount. If your position moves against you, the stop is made to close your trade at the new updated price.
So, you can use this philosophy of two lots on almost any king of trending graphs of any currency pair. The first set is designed for locking a pre-determined gain. The second set is designed as the trending component.
In case the market remains in trend position and makes a lower low, this lot would continue to trail, locking in profits. All the orders are placed on the basis of ticket by ticket.