What Is a Trailing Stop Order?

A trailing stop order helps traders manage risk more flexibly by adjusting the stop level as the market moves in their favor. This article explains what a trailing stop order is and how to use it correctly.

What is a Trailing Stop Order and how to use it?

Trailing stop orders helps you protect your potential profits, and it also provides you with downside protection. The order calibrates the stop price by a set percentage or amount of points below or above the stock's market price, and it also has an attached trailing amount. Trailing stops offer you a way to mitigate risk, and traders often use them as an exit strategy.

When the stock moves in a favorable direction, your trailing stop price moves with it. When moving in an undesirable direction, your trailing stock price remains the same. Market order triggering happens when your stock price gets to the trailing stop price. Execution of the market order then happens using the best available stock value.

Trailing stop orders come in several forms

Use of percentages as a trailing amount: When using percentages as trailing amounts, keep in mind that the real point scattered between the current market price and the trigger price will change upon recalculation of the trigger price.

When using a percentage as the trailing amount for sell orders, the point distance between the stock's price and the trigger price grows as prices rise. Since the percentage is on new, lower-cost buy orders that use a percentage as the trailing amount, the point distance between the security's price and the trigger price will narrow as prices dip.

Trailing Stop Limit Order

This allows setting up a triggering delta. It defines how much a market price can fall before you want to sell or rise when you buy. Here, you can specify the same as a percentage or a dollar amount.

Once you've set the trigger delta, Investor's Edge constantly recalculates the valuation that will activate your order predicated on the stock's market price as it keeps moving in the desired direction. It rises for a sell order and falls for a buy order. Upon shifting of the current market price, your trigger cost remains constant.

Trailing Stop-Loss

You can increase the efficacy of a trailing loss by pairing the same with a trailing stop. A trailing stop order is a trade order where the stop-loss price stays unfixed at a solitary, unconditional dollar amount. It is, however, set at a % or dollar amount just below the market rate.

Trailing Stop Sell

For trailing stop sell orders, the trigger valuation's recomputing is the latest top bid as the inside valuation rises to record highs. The original "high" is the inside bid when the trailing stop is activated, so the "new" high is the best price the portfolio reaches above that original value. If the price level rises above the initial offer, readjusting of the trigger price is the same as the new high, less the trailing quantity.

How to use a Trailing Stop Order in trading

Buy Stop Trailing Order

A buy trailing stop order pursues "trails," the cheapest stock rate by a trail you specify. A buy market order trigger occurs if the stock price rises beyond its most affordable rate by the trailing price or perhaps more and you can procure the equity at the best price possible.

Sell Stop Trailing Order:

Using a trail you specify, a sell trailing stop order follows the top price of a stock. When the stock falls well below the highest possible price by the trailing or maybe more, your sell trailing stop order is now a sell market order. The stock is, therefore, sold at the best available price.

An Example of a Trailing Stop Order

Trailing Stop Orders examples

Below are some practical examples of trailing stop orders:

Buy Trailing Stop Order

Let’s assume you’re interested in buying TIGO. However, you believe that its value will dip, but you still want to wait to buy it. You also think that if TIGO's value goes up by a certain amount (e.g., 5%), it can even go higher. To minimize potential costs, you proceed to set your trail at 5%. Here, your stop price should always remain 5% above TIGO's lowest price.

If the current trading price of TIGO is $110 per share, your stop price will start at $115.50, 5% greater than TIGO's current price.

• If the stock price of TIGO remains between $110 and $115.50, the stop price will remain at $115.50.

• If the stock price of TIGO falls to $100, the stop price goes up to $105. Five percent above the new lowest price.

• If TIGO rises to the stop price ($105) or stronger, it triggers a buy market order. You can therefore purchase TIGO at the best available price.

Sell Stop Trailing Order:

You’re the owner of TIGO, and you think that TIGO's value will rise. However, you still want to help safeguard your investment if TIGO's value falls. If your trail is at 5%, your stop price will continue to be 5% below TIGO's highest price.

If TIGO is currently trading at $100 per share, your stop price will start at $95, 5% lower than the current price.

• If the stock price of TIGO remains between $100 and $95, the stop price will remain at $95.

• If its stock price rises to $110, it updates to $104.50, 5% lower than the new highest price.

• If the price of TIGO falls to the stop price ($95) or lower, it triggers a sell market order. You can then purchase TIGO at the best available price.

How to place a Trailing Stop Order

When buying and selling a particularly volatile exchange rate with unpredictable price movements, a trailing stop-loss, for example, may be helpful. However, keep in mind that increased fluctuation levels may cause prompting of your stop-loss early on.

Trailing stop orders may pose risks due to their dependence on trigger pricing, heightened by market uncertainty, market trade data, and other domestic and foreign system factors.

In trailing stop orders, you follow the following steps:

Step 1

Enter a Trailing Stop Sell Order: You want to purchase a certain amount of company shares, lock in a profit, and limit losses. Set the trailing amount to a specific figure below the current market rate. First, create a SELL order, and then decide on the trail amount to determine the initial stop price.

Step 2

Transmit your order: You then send your order.

Step 3

When the market price increases, the trailing price is automatically adjusted considering the trailing amount

Upon order submission:

Step 4

Your stop price is the same as the one initially set upon falling the market price. Further falling of the market price to reach your stop price prompts the trailing stop order to complete a market order to sell the shares you purchased, limiting your losses.

The Metatrader platform uses the "Terminal" window's open position context menu command with the same name to set the trailing stop. Then, choose the desired distance value between the Stop Loss level and the current price in the opened list. Each open position can only have one trailing stop.

Following the completion of the preceding actions, the terminal checks if the open position is lucrative upon the arrival of new quotes. As soon as the earnings in points are equal to or exceed the defined threshold, the order to position the Stop Loss order is automatically issued. The order level is a certain distance away from its current price.

Furthermore, the Stop Loss level automatically follows the price if the price moves in a somewhat more profitable path. However, if the position's profitability falls, the order's modification won't happen. As a result, the financial gain of the trade position is instantaneous. After each automatic Stop-Loss order adjustment, a register comes up in the terminal report.

Professional tips for using Trailing Stops

When you’re using trailing stops, your intention should be to reduce losses as much as possible.

Below are some of the tips to make sure you achieve this goal:

• Cut your losses short to prevent losing too much capital. Retrospectively, allow your winners to keep going without prematurely closing them.

• Have an automatically fixed trailing stop. Set this to the maximum distance in between the stop loss and the price level further in the path of your trading activities. Your stop loss will remain in place as long as the price stays within this range.

• Move average-based trailing stop losses to help you find dynamic and logical levels to transpose your stop losses.

Best Forex brokers

The choice of broker can have a significant impact on a trader's overall experience, regardless of the strategy or risk management tools being used. Factors such as regulation, trading costs, execution quality, platform functionality, and available order types can all influence trading performance.

Below is a comparison of some of the best Forex brokers, based on their trading conditions, platform features, and suitability for different trading styles.

Use trailing stops to protect profits, not to avoid risk

Anastasiia Chabaniuk Educational Content Editor

One mistake I've seen traders make is treating trailing stops as a guarantee against losses. In reality, a trailing stop is a risk management tool, not a profit-generation tool. Its primary purpose is to help lock in gains as a trade moves in your favor while giving the position enough room to develop naturally.

The effectiveness of a trailing stop often depends on where it is placed. Setting it too close to the current market price can result in premature exits during normal market fluctuations, while setting it too far away may reduce its protective value. In practice, I find that trailing stops work best when they are aligned with market volatility, support and resistance levels, and the overall trading strategy rather than being applied with a fixed percentage in every situation.

Conclusion

Did you like the article?

Thank you for your feedback!

What could we improve?

send

Editors' Top Picks and Insights

8 hours ago Pavlo Kot

Q-Day for BTC: What happens if a quantum computer breaks Bitcoin?

#Crypto #Bitcoin #Quantum Computing

1 day ago Pavlo Kot

The cost of failure: Five of the most expensive digital outages

#OpenAI #Amazon #Delta Air Lines

2 days ago Eugene Komchuk

HashKey CEO: Asia is betting on asset tokenization

#AI #HashKey #Crypto

2 days ago Dmytro Kharkov

Debt surge meets higher yields: Critical signals for traders

#U.S. Treasury Department #AI #Rates #S&P 500

2 days ago Anastasiia Chabaniuk

From exchanges to banks: How Spain is reshaping its crypto market

#Spain #Cryptoreg #Crypto

2 days ago Ksenia Gerey

Argentina’s crypto paradox: Market growth continues despite banking restrictions

#Crypto #Bitcoin

All news

Related Articles

Full List of Stock Trading Scams 2026

Oleg Tkachenko

2 days ago

Best Assets to Trade on IQ Broker

29 weeks ago

Stock Market Guides Review 2026: Research, Alerts, And Performance

Andrey Mastykin

2 days ago

JCI Is Set To Break 10,000

Andreas Kristo

2 days ago

Best Recession Stocks To Invest In

Emilio Ghigini

1 year ago

Team that worked on the article

Ivan Andriyenko

Author at Traders Union

Ivan is a financial expert and analyst specializing in Forex, crypto, and stock trading. He prefers conservative trading strategies with low and medium risks, as well as medium-term and long-term investments.

Learn about our editorial policies

Olga Shendetskaya

Author and editor at Traders Union

Olga Shendetskaya has been a part of the Traders Union team as an author, editor and proofreader since 2017. Since 2020, Shendetskaya has been the assistant chief editor of the website of Traders Union, an international association of traders.

Mirjan Hipolito

Cryptocurrency and stock expert

Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets.

Glossary for novice traders

Limit order

A limit order is a type of order used in trading where an investor specifies a particular price at which they want to buy or sell a financial asset. The order will only be executed if the market price reaches or exceeds the specified limit price, ensuring that the trader gets the desired price or better when the trade is executed.

Risk Management

Risk management is a risk management model that involves controlling potential losses while maximizing profits. The main risk management tools are stop loss, take profit, calculation of position volume taking into account leverage and pip value.

Investor

An investor is an individual, who invests money in an asset with the expectation that its value would appreciate in the future. The asset can be anything, including a bond, debenture, mutual fund, equity, gold, silver, exchange-traded funds (ETFs), and real-estate property.

Cryptocurrency

Cryptocurrency is a type of digital or virtual currency that relies on cryptography for security. Unlike traditional currencies issued by governments (fiat currencies), cryptocurrencies operate on decentralized networks, typically based on blockchain technology.

CFD

CFD is a contract between an investor/trader and seller that demonstrates that the trader will need to pay the price difference between the current value of the asset and its value at the time of contract to the seller.