The Trailing Stops are a wonderful option, offered by most of the world brokers. They guarantee to you a preservation of a particular profit, while moving in your direction. Unfortunately, all this is not as nice as it looks. In this article we are trying to list their main drawbacks.
1. The Trailing Stop assures you that you will never get out the most of the deal. It will close only when the price returns to its top / bottom. For example, If the Trailing Stop is 30 pips, you will always close with 30 pips less. The regular waste of these 30 pips can lead to loss almost any trading strategy.
2. The Trailing Stop itself is a stop order. This means that the price at which they will be realized, is not guaranteed and depends on the market situation. It is possible, with some large movements around the news, to be executed with a lot of variations in your detriment.
3. During most of the time, the market is on a range. It is hard to consider how much is actually this percent, but the experts claim that it is nearly 90 % of the time. During those 90%, the price will move up and down and the chance to hit your stop is quite high. To avoid such adverse moments, it is necessary to use bigger values of Trailing Stop and then the lost benefits that we mentioned in section 1, will be even larger.
We may come to the conclusion that the Trailing Stop is able to defeat even quite profitable strategies. Its use is mostly dictated by the fact that the trading strategy itself has no close condition. A better approach is to seek for a suitable exit, instead of using a Trailing Stop.