Have you ever opened a deal in the Forex Market with profits flowing in your trading account and then after several minutes or hours, you still end up losing the deal? This particular scenario occurs frequently in the Foreign Exchange Market because traders fail to manage their trades respectively. This has caused so many draw-down in trader’s accounts and the funny thing is that traders don’t focus enough attention to this ever repeating situation. I have realized that most times we predict the market around 70-80% of the time correctly using sound and accurate strategies but we fail to understand that the Markets is very dynamic.
There are several options in which profitable deals can be managed in Forex trading but we will focus on the ‘trailing stops’ and ‘break-even pips’. You see we have an advantage in the markets with these two options provided for managing trades, this enables us to limit our losses and let our profit ride. The ‘trailing stops’ can be used to lock in some profits after your trade goes your favor, hence your deal is still running and you are waiting for the outcome. If the market continues to move in your favor, your profit lock will increase. This will continue to happen until the market flips back in the other direction and hits your stop.
The basic function of the trailing stop is to increase your profit lock as the market moves, without the need for you to intervene and adjust. This allows you to follow trends with a safety you are comfortable with, that you don’t have to monitor constantly.
On the other hand, ‘break-even pips’ is used to lock a trade at the price you got into the market after your trade goes your favor towards a particular number of pips. In this case, you make neither profit nor loss incase price flips back to hit your entry point. For example, you open a deal on Eur/usd with 50pips take profit and 25pips stop loss. If the trade goes 25pips your favor, you change your stop loss to your entry point, hence if market reverses to your entry point, you get stopped out without making gain or loss. Unlike the trailing stops that keep moving your stops in positive with the market, the break-even pips only activates once by changing your stops loss to your entry point.
There is no doubt you will come out with little profit or no loss using the ‘trailing stops’ or ‘break-even pips’ but your capital is safe which should be the paramount for managing risk in Forex Trading. In conclusion, ‘trailing stops’ and ‘break-even pips’ are a great trading tool that allows you to not only protect yourself, but to lock in more and more profit, without watching the market every second.