Trailing Stop
A trailing stop is a stop order that "follows" price as it moves in your favour. It is designed to protect profits while still giving a winning trade room to run.
In plain English: "If price goes my way, move my stop with it — but if price turns, close the trade."
How Trailing Stops Work
A trailing stop is based on a trailing distance (for example, 20 pips, £1, or 2%). The stop adjusts only when price moves in your favour.
- If price moves your way, the stop follows behind at the trailing distance.
- If price moves against you, the stop does not move back.
- If price reverses and hits the stop, the trade closes (usually as a market order once triggered).
⚠️ Important Detail
Many trailing stops trigger like a normal stop order. That means you can still see slippage in fast markets.
Trailing Stop on a Long vs a Short
Long position
- Stop level starts below your entry.
- As price rises, the trailing stop moves up.
- If price falls, the stop stays where it is until hit.
Short position
- Stop level starts above your entry.
- As price falls, the trailing stop moves down.
- If price rises, the stop stays where it is until hit.
Platforms may label this as Trailing Stop or Trailing SL.
How to Set the Trailing Distance
The trailing distance is the most important decision. Too tight and you get stopped out by normal noise. Too wide and you give back too much profit.
Use recent average range (e.g., ATR) or typical swing size. A 10-pip trail on a pair that swings 30–50 pips frequently will trigger too early.
Scalpers need tighter trails; swing traders usually need wider trails to survive pullbacks.
Are you trying to capture a big trend (wider trail) or protect profits quickly (tighter trail)? There is no "best" setting.
💡 Simple Starting Point (Beginner-Friendly)
Choose a trailing distance slightly larger than your instrument's normal pullback size on your timeframe — then test it in demo and adjust.
📊 Example: Trailing Stop on a Long Trade
You buy an index at 10,000 with a trailing stop of 100 points.
- Price rises to 10,200 → trailing stop moves to 10,100.
- Price rises to 10,350 → trailing stop moves to 10,250.
- Price then falls to 10,250 → trailing stop triggers and closes the trade.
You didn't have to guess a take-profit level. The trailing stop "managed the exit" by locking in profit as price advanced.
Common Trailing Stop Mistakes (and Fixes)
- Trailing too tight: stopped out by normal pullbacks.
Fix: widen trail to match volatility and timeframe. - Trailing too early: turning a good trade into a scratch trade.
Fix: only start trailing after price moves a minimum distance or after a structure break. - Using trailing stops in illiquid conditions: large slippage.
Fix: avoid trailing into major news or low liquidity sessions. - No plan for partial profits: all-or-nothing exits.
Fix: consider scaling out and trailing the remainder if it fits your strategy.
💼 Practical Mindset
A trailing stop is not magic. It is an exit strategy. Like any exit, it will sometimes cut winners too early and sometimes give back profit. The goal is long-term expectancy, not perfect exits.
Common Misconceptions
- "Trailing stops guarantee maximum profit."
They don't. They are a compromise: you give the trade room to run, but accept that you will exit on a pullback. - "A tighter trailing stop is always better."
Tight trails increase early exits and reduce average win size. Better depends on your strategy and market volatility. - "Trailing stops remove emotions completely."
They reduce decision pressure, but traders still interfere (moving the trail, switching it off, etc.). Rules still matter.
✅ Quick Checkpoint
Try answering before expanding the model answers.
1) When does a trailing stop move?
Only when price moves in your favour. It does not move back when price retraces.
2) What is the biggest risk of setting the trailing distance too tight?
You will be stopped out by normal market noise and miss the main move.
3) What is the main benefit of a trailing stop versus a fixed take-profit?
A trailing stop can capture larger moves without needing to predict an exact target level in advance.
If you can explain these clearly, you understand how trailing stops function as an exit strategy.
Frequently Asked Questions: Trailing Stops
Is a trailing stop the same as moving my stop manually?
The idea is similar, but a trailing stop automates the movement based on a rule (distance). Manual stop management can be more flexible, but requires discipline and attention.
Can trailing stops slip?
Yes. Many trailing stops trigger like standard stops. In fast markets or gaps, execution can occur at the next available price.
Should I trail based on pips/points or percentage?
Either can work. Pips/points are common in FX and indices; percentage trails are common in shares. Choose the method that aligns with volatility and your timeframe.
Are trailing stops good for beginners?
They can be, but beginners often set trails too tight. Practise in demo and compare results versus a fixed take-profit approach.
Summary
A trailing stop follows price in your favour at a set distance, helping you protect profits while allowing winners to run. It is a practical exit method when you want to capture bigger moves without predicting a fixed target.
The single biggest success factor is choosing a trailing distance that matches volatility and timeframe.
Next lesson: Good Till Cancelled (GTC)