In this lesson we will see what is the Stop Following used for and how it works. This function is different from the previous two chapters, Stop Loss and Stop Limit. The stop following is a stop that varies based on the market development.
Before continuing, we would like to emphasize that the Stop Following and the other stops are available on the Plus500 platform, even for practicing with virtual money in demo mode.
What is “Stop Following” used for?
To better understand how Stop Following works, we need to understand what it is for.
Suppose we open an order and set the Stop Loss to automatically close the position if the losses reach the set level.
If the market were to move in our favor, it would be wonderful if the Close on Loss level would move in the same direction, updating the level of the set loss ratio. It is precisely for this reason that the Stop Following has been designed.
An example to better understand it
We can better understand the Stop Following with an example.
Suppose the price of an asset is 100 and we want to open a Long order, i.e. “Buy”. We set the Close at Loss to 90, so that the position will be automatically closed if the price drops and reaches 90.
But how could we take better advantage of our trade if the price went up? Simple: by using the Stop Following.
With the Stop Following, you can make the Close go up if the buy position makes a profit. In fact, in our example, we could set the Stop Following so that the price reaches 110.
This means that the stop will be adjusted, and also that you will be able to close the position at a profit and not just at a loss.
The same applies to Short positions, or “Sell”, where you trade based on forecasts of the asset’s decline.
Using “Stop Following” on the Platform
First, we have to say that not all platforms allow us to apply the Stop Following. This is a feature found only on the best trading platforms, among which is the Plus500 platform.
After choosing an asset and clicking Buy or Sell, depending on the order you want to open, a window will open where you can set the details of the order. You will see the Close with the loss, Close to Profit and by clicking on “Advanced” the Stop Following will appear.
For an example, let’s click “Buy” on the Tesla asset (with CFDs that copy the performance of Tesla shares)
If the market develops upwards, the Stop Following will also adjust, rising and maintaining the same difference between the current rate and the maximum loss level from it.
Therefore, the Stop Following is a stop that changes based on the current rate and adjusts to it if the market moves in the right direction.
From today, you can start trading CFDs through a demo account with this world leading platform, authorized by CYSEC