Trailing Stop Loss Done Right: Tips for Safer, Smarter Trading

Hello everyone, it’s Dale here, and in this video, I’d like to talk about stop-loss trailing. I’ll give you some pointers and tips on how to use it to maximize your gains. By stop-loss trailing, I mean moving your stop-loss in the direction of the trend you are participating in. For example, let’s say you entered a trade here, going short. As the downtrend progresses, you secure your trade by moving the stop-loss, locking in your gains as you go. This is what I mean by trailing a stop-loss.

Now, stop-loss trailing works best in scenarios where the market moves consistently in one direction without significant pullbacks. In such cases, you can ride the trend, move the stop-loss, secure your trade, and potentially gain a significant profit. Let me give you an example of an ideal scenario: a nice, steady trend with no major pullbacks. However, the problem with this is that such scenarios are rare. Markets don’t often behave like this. In fact, you rarely see a strong trend without pullbacks.

What’s far more common is a market that moves unpredictably, with swift movements, market manipulations, stop-loss runs, changes in volatility, and shifts between rotations and trends. Most of the time, the market is in a rotation—about 70% of the time—while it trends only around 30% of the time. Trailing a stop-loss is only effective in trending markets, and as you can see, that doesn’t happen very often. The market is constantly shifting, making it challenging to take big trades by trailing a stop-loss. But it’s not impossible, and in this video, I’ll show you how to do it effectively.

Let’s address a common problem many traders face. When trailing their stop-loss, they often fail to set a fixed take-profit and instead wait for the market to kick them out of their trade after a trend reversal. Letting the market decide when you exit is not advisable; it should be you who decides when to quit a trade. Imagine you’re short from this point, trailing your stop-loss, and then a sudden reversal occurs. You get kicked out of the trade, losing a significant portion of your profits. This is frustrating, isn’t it? To avoid this, always have a fixed take-profit. For example, use the volume profile to identify heavy volume zones, which act as strong support or resistance levels. These zones can be excellent take-profit targets.

Here’s an example: imagine you’re short and trailing your stop-loss. When the price reaches a significant heavy volume zone visible on the volume profile, you exit the trade instead of waiting for a reversal to take back most of your gains. These heavy volume zones are barriers, and when the price approaches them, there’s a high chance of a reversal. By setting a fixed take-profit at these levels, you secure your profits before the market turns against you.

Another question traders often ask is how big the stop-loss should be when trailing it. Should it be tight, wide, or somewhere in between? A tight stop-loss might protect your position, but it can also cause you to exit prematurely during minor pullbacks. On the other hand, a wide stop-loss might allow the trade to breathe but could result in losing a significant portion of your gains during reversals. The solution is to base your stop-loss on market barriers, not on a fixed number of pips. Use the volume profile to identify heavy volume zones, which act as logical barriers. Place your stop-loss behind these zones.

For example, if you’re in an uptrend and have identified heavy volume zones using the volume profile, your stop-loss should move behind these barriers as the price progresses. If the price breaks through a barrier, it’s a sign to exit the trade. This method adapts your stop-loss to market conditions and provides a logical approach to securing your position.

To summarize, there are two key points to remember: first, always set a fixed take-profit based on significant barriers, ideally using the volume profile. Second, trail your stop-loss logically by placing it behind heavy volume zones. This way, you control your trade exits, rather than letting the market dictate them.

If you’d like to learn more about volume profile trading, visit my website at Trader-Dale.com. Click on the “Trading Course and Tools” button to explore my trading education materials and custom-made indicators. You’ll find the Volume Profile Pack, which teaches everything about volume profile trading, and the Order Flow Pack, focused on day trading with order flow. Both packs include custom indicators for Volume Profile, Order Flow, and VWAP. You can also purchase these packs together in a discounted bundle.

If you’re interested in day trading with me and other funded prop traders daily, check out the Funded Trader Academy (FTA). Click the “FTA” button on my website to watch a video about it and book a call to see if it’s the right fit for you.

Thanks for watching this video. I look forward to seeing you next time. Until then, happy trading!