Definition

A Trailing Stop-Loss is a dynamic stop order that adjusts as the market price moves in favor of a position. It follows price at a defined distance, helping secure gains while limiting downside risk.

Unlike a fixed stop-loss, a trailing stop moves only in the direction of favorable price movement.

Example in Context

A trader sets a trailing stop 5% below the current price. As the asset price rises, the stop level adjusts upward. If price reverses by 5%, the position is automatically closed.

FAQs

Does a trailing stop eliminate risk?

No. Rapid market movements may still result in slippage.

Can trailing stops move downward?

For long positions, trailing stops move upward only and do not adjust downward.

Are trailing stops used in automated trading?

Yes. Many automated systems support trailing stop logic.

Related Terms