Trailing stop

A trailing stop is a stop-loss that follows the price at a set distance when it moves your way and stays put when the price turns around.

How it works

You set the distance: in pips, dollars or percent. Price moves your way, the stop moves with it. Price turns around, the stop stays where it was. If price reaches the stop, the position closes.

This locks in part of the profit and saves you from moving the stop by hand. It is handy in a strong trend when you do not know where it will end. At some brokers the trailing stop lives in the terminal itself, not on the server, so the platform has to stay running.

The distance is chosen from volatility: it should be wider than normal price swings. It is often tied to ATR (average true range) or the last swing low.

Example with numbers 1

You bought at 1.1000 and set a 20-pip trail. Price rose to 1.1050, so the stop moved to 1.1030. Then price fell to 1.1040, and the stop stayed at 1.1030.

Example with numbers 2

You bought a coin at 100 USD with a 10% trail. Price rose to 150, so the stop rose to 135. Price turned and fell to 135: the position closed with a 35 USD profit per coin.

Common mistake

Do not set the trail too tight. Normal market noise will knock you out before the big move. Check the volatility first and make the distance wider than a typical pullback. And remember: on a sharp gap the stop fills at the market price, which can be worse than the stop level.

Questions and answers

What is a trailing stop in simple terms?

It is a stop that moves up behind the price as the trade goes into profit. It helps you keep gains if the market reverses.

What distance should I use for a trailing stop?

Wider than the normal swings on your timeframe. Many traders use 1.5–3 ATR or put the stop below the last swing low (for a buy).

Does a trailing stop work if I turn off my computer?

It depends on the platform. On many exchanges it is stored on the server and always works; in some terminals it only works while the program is running.

Trailing stop

How it works

Questions and answers

Related terms

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