Trailing stop order
A trailing stop order can limit your losses in a position, just like a normal stop order. However, unlike a normal stop order, the trailing stop level will follow the position if it becomes increasingly profitable. You would therefore place the trailing stop below the market price on long positions, and above the market price for short positions.
How to use a trailing stop
A trailing stop enables you to protect a position, without the risk of taking profits too early. If the position moves smoothly in one direction, your stop will follow it, until there is a pull-back big enough for the position to reach the stop price.
The trailing stop order only moves in one direction:
For Trailing Stop to Sell, placed on a Long position - only moves up
For Trailing Stop to Buy, placed on a Short position - only moves down
When placing a trailing stop you need to set two parameters:
- Stop Loss order level, to determine a distance to the market (can be placed in different units: percent, price, ticks, or currency).
- Trailing step, to specify how much should the market move before the stop order re-adjusts.
Please watch this video to learn how to place a trailing stop order.