Forex ATR – trailing stop loss in scalping and day trading
Trailing stop loss is one of my favorite tools. It gives you clear signals, helps you to catch bigger moves. There are many popular variations of this tool. If you use Metatrader4 then I recommend Chandelier Exit – it is a custom indicator so you have to download it and install in MT4.
When you add it to the chart, you should specify Inputs. I recommend a little bit longer range and period, so you can catch easier bigger moves. ATR Multiplier is very important – standard one is around 3.0 value. Remember that you can change it every decimal value so it can be 3.7, 4.0, 4.4 etc. This small decimal changes can be clearly seen on chart and thanks to them you may have many signals and short-term trades or fewer signals but with the possibility to catch more trend moves.
There is no single correct set of settings for trailing stop. You have to set the best parameters based on price history. For every time frame and pair, it can be different.
About time frames. Trailing stop loss works on every time frame, but if your goal is to scalp on trends then I suggest to try it on 5m or 15m. You can catch really big moves. Still, if you want to scalp on 1m TF then you should be fine.
To the charts!
Trailing stop loss is a simple line for long and short positions:
It is best to join trailing stop loss with other tools. The main reason for that is that you want to trade in a trend direction (unless you are a counter-trend trader). There are many combinations here. Below you can see trailing stop loss joined with averages and MACD with longer parameters.
The main idea here is to go with the main trend because the chances for success are best. In the example below we can see from averages and MACD that trend is up so we look only for long opportunities. We close trade when there is a close below trailing line:
I don’t want to make false statement that trailing stop loss is so ideal. As every technical tool, it can be hard to trade during a range move:
Trailing stop loss can be joined with Pivot lines. If you follow me long enough, you know that I can join almost everything with pivots :). There is a reason for that. They give you very valuable information about potential entry and exit points. Just like in the example below. We could see that trend is up so we were looking for long trades. After entry, there was a strong move up. If we would follow only signals from trailing stop loss then the close should be around 1.1635 level. Thanks to the pivot lines we could see the price approaching R3 line – that is always a great place to exit and take profit. It was also in that case – if you close at R3 line that was around 1.1643. 8 pips higher, but remember that we are talking about 1-minute chart!
There are many other examples how trailing stop loss joined with Pivot lines can give you much better results. Even on a 1m time frame as you could see above.
Basic info about day trading:
- Forex scalping and day trading for beginners
- Best Forex broker, fx pairs, trading hours for scalping and day trading
- Day trading Bitcoin
- Forex scalping and day trading without indicators
- Time frames in day trading
- Trading desk
Management in day trading:
Indicators in day trading
- Forex ATR – trailing stop loss
- Forex Parabolic SAR
- Moving averages
- Bollinger bands
- Fibonacci retracement
- Support and resistance, Pivot Points