The Stoploss is the only form of trade management that exist in trading.
It could be argued that mastering the trailing stoploss is on par ,in terms of importance, mastering a strategy. That is a crucial a stoploss is.
The purpose of a trailing stoploss is to secure your profits.
Traders who never trail their stoplosses become victim to and subject to the randomity of the market. Destined to place trades that jump into profits and then boomerang back into losses.
Trailing stoplosses is probably one of the more complex and risky activities in trading. 1 or 2 pips difference could be the difference between leaving a trade with 1% of your account or leaving it with 3% of your trading account.
Trailing your stoploss is a skill that must constantly be refined in order to maintain its efficacy. The form of the market should be the key determiner for how tight you trail your stoploss or whether or not to do it a a specific trade/position.
With a trailing stoploss we run into a sort of paradox which is that by securing your profits you increase your apparent risk and potentially lose out on additional profits as a result.
Because the market flows from low to high by having your stoploss closer to the current price ,by definition, you are increasing your apparent risk. This means there is a higher chance of price stretching out to connect to your stoploss.
Spreads also come into the equation here as the bigger your spread the more likely you are to be stopped out. Because the time of day can affect the spread on the asset its important to monitor both these factors as there is nothing more annoying and costly than being stopped out of a good position because you didn't take into account the changes in the spread and the time of day.
The proper employment of a stoploss can turn red days into green days.
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