Trading conceptsUpdated 2 min readBy the FXNOD team
Trailing stop loss: how it works and when to use it
A trailing stop is a stop loss that moves with the price when a trade goes in your favour and stays where it is when the price moves against you. If you trail by 30 pips and the price rises 100, the stop has risen 100 as well. It locks in profit as a trend continues and exits when the price turns by the trailing distance.
An example
| Price | Trailing stop (30 behind) | What happened |
|---|---|---|
| 1.1000 | 1.0970 | Entry |
| 1.1050 | 1.1020 | Stop follows the rise |
| 1.1030 | 1.1020 | Price dips; the stop does not move back |
| 1.1100 | 1.1070 | Stop follows again |
| 1.1070 | 1.1070 | Stopped out with 70 locked in |
Ways to trail
| Method | The stop follows | Character |
|---|---|---|
| Fixed distance | A set number of pips or points behind the price | Simple; ignores volatility |
| Percentage | A set percentage behind the price | Common for shares |
| ATR multiple | A multiple of the average true range | Adapts to volatility |
| Structure | Each new higher low in an uptrend | Follows the trend's own rhythm |
| Moving average | An average the price is trending above | Slow; stays in long trends |
The trade-off
A tight trail protects more profit and is knocked out by ordinary pullbacks, often just before the trend continues. A loose trail stays in the trend and gives back more at the end. There is no setting that does both. Choose by whether you would rather miss part of a big move or give back part of your gain.
Trailing stop and normal stop
| Stop loss | Trailing stop | |
|---|---|---|
| Position | Fixed | Moves in your favour only |
| Purpose | Limit the loss | Limit the loss, then protect profit |
| Needs a target? | Usually paired with one | Can replace a fixed target |
Things to know
- On some platforms a trailing stop runs on your device and stops when the terminal closes. Check where yours runs.
- Like any stop, it can fill beyond its level in a gap.
- Trailing works in trends and performs poorly in ranges.
- A stop-limit version can fail to fill at all in a fast move.
In bots
For a bot session, the equivalent is a limit that rises as the session gains, so part of a profit is kept. FXNOD's bots use a fixed session stop loss and an optional profit target, not a trailing one.
Questions people ask
- Is a trailing stop better than a stop loss?
- It is a stop loss that also protects profit. It suits trending trades and is no help in a range.
- What is a good trailing stop distance?
- One wider than the market's normal pullbacks. An ATR multiple is a sensible way to set it.
- Does a trailing stop guarantee my profit?
- No. In a gap or fast market it can fill worse than its level.
Try it without risking money
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