Combination stop loss and trailing stop is a powerful risk management tool in forex trading. This strategy is designed to limit losses and maximize profits. A stop loss order is an order to exit a position at a certain predetermined price level in order to limit losses. A trailing stop is an order to exit a position if the price moves in a certain direction by a certain number of pips.
When using the combination of stop loss and trailing stop, the stop loss order is set at the predetermined price level and the trailing stop order is placed at a level a predetermined number of pips away. For example, if the stop loss order is set at 20 pips, the trailing stop order would be placed at a level 10 pips away. This way, when the market moves in the trader's favour, the trailing stop order moves with the price, protecting profits while allowing them to increase.
However, when the market moves in the opposite direction, the stop loss order is triggered, limiting losses. This type of combination strategy limits losses and allows traders to take advantage of market movements in their favour. It also allows traders to focus on the market, rather than constantly monitoring their profit and loss.
