What is Trailing Stop Loss? The simple understanding of Trailing Stop Loss on eToro.
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Trailing Stop Loss aka the move Stop Loss. The feature is that the Stop Loss level works depending on whether the position is Buy or Sell. In this article, we discuss how Trailing Stop Loss with buy orders on eToro works.
The way the Trailing Stop Loss with Sell order works on eToro, you think the opposite.
What is Trailing Stop Loss?
Trailing Stop Loss places a stop-loss order at a fixed range above or below the market price, depending on whether the position is SELL or BUY.
As long as the market moves in your favor, the stop loss will move with it, maintaining the same locked distance from the current market rate.
The principle of Trailing Stop Loss with buy orders is straightforward:
- The price goes up, and the stop loss is automatically raised according to your preset fixed distance.
- When the price goes down, the stop loss stops, not down.
How to work Trailing Stop Loss on eToro
When you tick Trailing Stop Loss in the order, the Stop Loss is raised according to the fixed distance you set earlier if the price goes up. If the price goes down, like average Stop Loss, touching Stop Loss will close the order.
You have the option to set your stop loss as soon as you open the trade or at any time afterward.
All you need to do is click “Stop Loss” in the Open Trades window, and Trailing Stop Loss appears below. The fixed price gap is updated accordingly if you manually edit the Stop Loss while the Trailing Stop Loss is on.
When should you use Trailing Stop Loss?
Our advice is that Trailing Stop Loss should only be applied when you are already profitable and satisfied with the profit of your opened buy order. However, if you close the price, the price will continue to increase. You want to increase your profits while preserving your existing profits.
However, keep in mind that on eToro, only when the order is already profitable can you set Stop Loss to be positive, and Stop Loss must be below or equal to profit as shown below.
Here is an example illustrating a specific case when Trailing Stop Loss works and why it should only be used when the order is already profitable:
You place a buy order at 100 USD/share. You set Stop Loss at 80 USD and turn on Sliding Stop Loss. So the fixed distance level is 20 USD.
– Case 1: Then the price increases to 110usd, Stop Loss automatically increases to 90usd. Next, the price drops to 100 USD, Stop Loss is still at 90 USD.
If the price goes up to 105 USD again, the Stop Loss is still at 90 USD because it is based on a fixed distance of 20 USD from the highest price of 110 USD.
But if the price goes up to 115 USD, then Stop Loss again to 95 USD. And now the price drops and reaches 95usd, the order is cut at 95usd.
=> So you buy at 100 USD, set a stop loss of 80 USD, and have a stop loss at 95 USD. So, this case explains why the trailing stop should only be used when there is a profit, avoiding unnecessary closing because the price is constantly fluctuating.
– Case 2: Then the price drops to 90 USD, Stop Loss remains at 80 USD. The price goes down to 80 USD, Stop Loss is activated, and the order is closed.
Trailing Stop Loss is moving stop loss, not fixed like Stop Loss. So make sure you have a good understanding of how it works before using it in trading.
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