Trailing stop

A trailing stop is a type of stop-loss order that automatically adjusts to follow the market price. This happens as it moves in a trader’s favor. Unlike a fixed stop-loss, which stays at a set price, a trailing stop moves up (for a buy position) or down (for a sell position). It does so based on a specified distance or percentage. This allows traders to lock in profits. At the same time, it gives the trade room to grow.

For example, if a trader sets a trailing stop 20 pips below the current price in a long position, the stop will move up with the price. It maintains that 20-pip distance. If the market reverses by 20 pips, the trailing stop is triggered. Then, the trade is closed. Trailing stops are popular among traders who want to protect gains while allowing for potential upside. This method eliminates the need to constantly monitor the market.

Browse through other terms in our Trader’s Dictionary.

Disclaimer: This is a definition of the term only and it is not trading advice.

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