A trailing indicator that suggests levels to exit and possible entry in the other direction.
Overview
The Trailing Stoploss Reversal Level indicator “trails” (or follows) above or below price depending on its position respective to the price. It can be set to trail above or below prices based on volatility or a user-defined number of pips. Volatility-related settings and Pip-based settings are available to allow the user fine-tuning of the indicator.
The Trailing Stoploss Reversal Level in the GBP/USD Daily Chart on 3/22/2011
Source: VT Trader
Interpretation
Trailing Stoploss levels, either volatility-based or pip-based, have become very popular with traders as a non-emotional exit strategy for their trading methodology. Trailing Stoplosses help to remove the emotion usually involved with exiting trades thereby helping the user to better control their risk.
In a long position, the trailing stoploss level trails (or follows) below price and ratches itself higher as prices rise. Conversely, in a short position, the trailing stoploss level trails (or follows) above price and ratches itself lower as prices fall. However, if price retreats back towards the trailing stoploss level the trailing stoploss level will remain at its previous level never “backing away” from price thus helping to protect potential profits or limit loss. A long trade exit is signaled when price crosses back below the trailing stoploss level. A short trade exit is signaled when price crosses back above the trailing stoploss level.
