Trailing stop orders are a powerful tool in CFD trading that can help traders limit their losses and lock in profits. If you’re new to trading or haven’t used trailing stops before, it can be challenging to know where to start. In this article, we’ll explain how to use trailing stop orders in CFD trading and provide tips to help you get started.
What is a trailing stop order?
A trailing stop order is a type of order that automatically adjusts as the market price moves in your favor. The order “trails” the market price at a fixed distance, allowing you to lock in profits while also giving your trades room to breathe.
For example, let’s say you enter a long position on a CFD at $100, and you set a trailing stop order with a trail distance of $10. If the market price moves up to $110, your trailing stop order will move up with it, and the new stop loss will be set at $100 ($110 – $10). If the market price then falls back to $105, your stop loss will remain at $100. However, if the market price falls to $90, your stop loss will be triggered, and you’ll exit the trade with a $10 profit.
How to use trailing stop orders in CFD trading
To use trailing stop orders in CFD trading, you first need to open a trading account with a broker that supports this order type. Once you’ve opened an account and funded it, you can follow these steps:
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Identify the market you want to trade
Before you enter a trade, you need to have a clear idea of which market you want to trade and what your trading strategy is. It’s also essential to do your research and stay up to date with any news or events that could affect the market’s price.
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Choose the right trade size
Once you’ve identified the market you want to trade, you need to choose the right trade size. This will depend on your risk appetite, trading strategy, and available capital.
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Set your stop loss
Before you enter a trade, you need to set your stop loss. This is the price at which you’re willing to exit the trade if the market moves against you. With trailing stop orders, you can set your stop loss at a fixed distance from the market price and let it trail as the price moves in your favor.
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Set your trailing stop distance
Once you’ve set your stop loss, you need to set your trailing stop distance. This is the distance from the market price at which you want to place your trailing stop order. A common practice is to set the distance at 1-2 times the average true range (ATR) of the market.
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Monitor your trade
Once you’ve entered your trade, you need to monitor it closely to make sure it’s going according to plan. You should also be prepared to adjust your stop loss and trailing stop distance if the market price moves against you. If you want to learn more about how to use trailing stop orders effectively in your CFD trading, be sure to read our blog and level up your trading.
Conclusion:
Using trailing stop orders in CFD trading can be highly beneficial for traders looking to maximize profits while minimizing risk. It is an advanced order type that automatically adjusts the stop loss level as the price of an asset moves in the trader’s favor. By setting the distance of the trailing stop based on risk tolerance and trading strategy, traders can lock in profits and minimize losses. The advantages of using trailing stop orders include locking in profits, minimizing risk, and saving time. Traders should determine their risk tolerance and trading strategy before placing a trailing stop order, and monitor their trades closely once executed