A trailing stop order can limit your losses 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.
When placing a trailing stop you need to set two parameters:
- Distance to market: How far from the market price should the stop be placed (in percent, price, ticks or USD)?
- Trailing step:How much should the market move before the stop order re-adjusts?
To apply a trailing stop, simply right-click on your position, then select ‘Add’ under ‘Stop’ in your ‘Positions’ view. Click ‘Stop Loss > Trailing Stop’, then choose where it’s set in relation to the market price.