Trailing StopTSL
A trailing stop is a stop order that follows the price at a set distance as the trade moves in your favour, but never moves back.
A normal stop-loss stays where you put it. A trailing stop moves: as the price rises (for a long position), the stop rises with it, always a fixed dollar amount or percentage below the best price reached.1 When the price turns down, the stop stays put, and if the price falls to it, you are out. It is a simple way to protect profits without guessing the top — at the cost of giving back some of the move, and sometimes being shaken out by noise.
- Category
- Order Types
- Reading time
- 6 min
- Also called
- Trailing stop loss, Trailing stop-loss, Trailing stop order
- Updated
A trailing stop in plain words
Instead of a fixed price, a trailing stop is set as a distance — a percentage or a dollar amount — from the market price. As the price moves in your favour, the stop adjusts and “trails” it by that amount. If the price moves against you, the stop stays fixed, and the order is triggered when the price reaches it.2
It can be a stop order (which becomes a market order when triggered) or a stop-limit order.2 Either way, the profit it locks in depends on how far back you set the trail.
How a trailing stop works, step by step
Choose the trail
Set the distance in dollars or percent. Too tight and normal swings trigger it; too wide and you give back too much. Short-term fluctuations can activate a trailing stop, so choose the distance carefully.2
The stop starts below the price
For a long position, the initial stop sits the chosen distance below the current price.
It moves up with new highs
Every new high pulls the stop up by the same amount; the stop always sits the trail distance below the highest price reached.
It never moves down
When the price falls, the stop stays where it is.2
Check how your broker triggers it
Some venues use last-sale prices and others quotes to decide whether the stop has been reached.2
Worked examples
Example 1 — A $1 trailing stop
TrailYou buy a stock at $20. It rises to $22, and you set a sell trailing stop $1 below the market price. The stock peaks at $24, then falls.
| Initial stop | $22 − $1 = $21 |
| Stop at the $24 peak | $24 − $1 = $23 |
| Triggered when price falls to | $23 (the fill may differ) |
| Profit if filled at $23 | +$3 a share |
This mirrors the SEC’s own example.2 The stop locked in $3 of a $4 move without needing to guess where the top would be.
Example 2 — Too tight
Too tightAnother trader buys at $50 with a 2% trailing stop. The stock typically swings 3% in a day. It dips from $51 to $49.90 in the morning, triggering the stop, then closes at $53.
| Stop at $51 high | $51 × 0.98 = $49.98 |
| Exit | ≈ $49.90 |
| Missed by close | $3.10 a share |
A trail tighter than the stock’s normal daily swing gets triggered by noise. Set the distance relative to volatility. See Volatility and Average True Range.
Example 3 — Percentage vs. dollar trail
Trail typeA stock climbs from $40 to $80. One trader uses a $4 trail; another a 10% trail.
| $4 trail at $40 / at $80 | 10% of price / 5% of price |
| 10% trail at $40 / at $80 | $4 / $8 |
| Effect | A fixed-dollar trail gets relatively tighter as price rises |
A percentage trail keeps the same relative room as the price changes; a dollar trail does not. Neither is right in every case.
A $1 trailing stop following the price
Trailing stop vs. fixed stop
When traders use trailing stops
Riding trends
A trailing stop lets a winning trade run while protecting gains. See Trend Following.
Hands-off management
Useful when you cannot watch the market all day.
Exiting runners
After taking partial profit, a trailing stop on the rest is a common way to manage the remainder. See Scaling In and Out.
Volatility-based trails
Some traders trail by a multiple of the average true range instead of a fixed amount.
Advantages and disadvantages
Advantages
- Protects profits automatically as the price moves your way.
- Removes the need to pick an exact top.
- Simple to set up on most platforms.
Going deeper
Read as far as you need. Each level builds on the one before it.
Trailing stops for short positions
Beginner
For a short position the logic is reversed: a buy trailing stop sits above the price and moves down as the price falls, but never moves up.
Trailing stop-limit orders
Intermediate
A trailing stop can also be a stop-limit order.2 That caps the price you accept when it triggers, but if the price moves through your limit the order may not fill. See Stop-Limit Order.
Server-side vs. platform-side
Advanced
Some trailing stops are held by the broker or exchange; others are calculated by your trading software and only sent when triggered. If your platform or connection is off, a platform-side trailing stop may not work. Check which kind you have.
Common mistakes
Trailing tighter than normal noise
If the trail is smaller than a typical daily swing, you will be stopped out constantly.
Using a trail as the initial stop only
Decide the initial risk first; the trail manages the trade after it moves.
Forgetting gaps
A trailing stop cannot jump an overnight gap; the fill can be far below.
Assuming the stop price is the exit price
Triggered stops usually become market orders; the fill may deviate.2
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- A trailing stop follows the price at a set dollar or percentage distance.
- It moves only in your favour and stays fixed when the price turns.
- When triggered it usually becomes a market order, so fills can deviate.
- Set the trail relative to the asset’s normal volatility.
- It protects profits but gives back the trail distance by design.
Frequently asked questions
What is a good trailing stop percentage?
Does a trailing stop guarantee my exit price?
Can I use a trailing stop on a short position?
Further learning
- Stop Loss
The fixed stop that sets your initial risk.
- Stop-Limit Order
The alternative that caps the fill price.
- Volatility
How to choose a trail that sits outside normal noise.
- Take Profit
The other way to exit a winning trade.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- StockCharts ChartSchool. ATR Trailing Stops (opens in a new tab) Checked .
- Investor.gov (SEC). Stop, Stop-Limit, and Trailing Stop Orders – Investor Bulletin (opens in a new tab) Checked .
Read more elsewhere
- Trading Metrics (our sister site): Stop-Loss Orders (opens in a new tab)
- Investopedia: Trailing Stop (opens in a new tab)
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. Trading Metrics is our sister site, under the same ownership; we are not affiliated with any other publisher linked above. Last reviewed . Report an error or request a source credit.