A trailing stop is a dynamic stop loss that moves with the price in your favor. It locks in profits while giving the trade room to continue.
How It Works
Buy EUR/USD at 1.0850, trailing stop 30 pips:
| Price | Stop Loss | Locked Profit |
|---|---|---|
| 1.0850 | 1.0820 | $0 |
| 1.0880 | 1.0850 | $0 (breakeven) |
| 1.0920 | 1.0890 | $400 |
| 1.0950 | 1.0920 | $700 |
| 1.0930 | 1.0920 (triggered) | $700 locked |
Setting Trailing Stops
Fixed Pip Trail
- Trail by X pips from current price
- Simple but ignores volatility
ATR-Based Trail
- Trail by 1.5-2x ATR
- Adapts to market conditions
Moving Average Trail
- Use 20 EMA as trailing stop
- Dynamic and trend-following
Advantages
- Lets profits run
- Automatically locks in gains
- Removes emotional decisions
- Works great in trending markets
Disadvantages
- Can get stopped out in consolidation
- Requires platform support
- May give back significant profits in reversals