Trailing Stop
A stop loss that follows price in your favor and never moves back against you.
Also called: trail stop · trailing stop loss
In plain language
A trailing stop is defined by a distance rather than a fixed price — say $2, or 5%, or one ATR below the highest price reached.
As price advances the stop ratchets along behind it. When price retraces, the stop stays put. It only ever moves in the direction that reduces your risk.
The trail distance is a direct tradeoff. A tight trail locks in gains but gets shaken out by normal noise; a wide trail rides bigger trends but gives back more at the end.
Why it matters
A trailing stop converts an open profit into a protected one without requiring you to guess the exact top, which is the part nobody does reliably.
Common mistakes
- Trailing so tightly that ordinary intraday noise closes the trade.
- Starting to trail before the trade has moved far enough to have a profit worth protecting.
- Manually loosening the trail when it gets close, which defeats the entire mechanism.
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
A predefined exit that closes a losing trade before the loss becomes serious.
A predefined price where a winning trade is closed automatically.
The average size of an instrument’s price range per period, including gaps.
A stop placed at a multiple of the instrument’s Average True Range rather than a fixed percentage.
The price at which you close a position, whether at a profit or a loss.