What is a Trailing Stop Order and How Does it Work? - Guide With Examples
Put simply, a trailing stop order is a risk management technique where a trader sets their stop loss level to trail the current market price by a specified value or percentage. It’s an offshoot of the original stop-loss order. The difference is that instead of using a fixed stop price, a trailing stop follows the market price at a predefined distance during a trend. This way, you can maximize your profit and minimize loss potential.
The trailing stop is not typically used as an entry order. Traders mostly use it when they have an open position that is already accumulating profit with each market movement.
Incorporating a trailing stop order strategy can help you solve one of the biggest dilemmas you’ll ever face as a trader. Should you cut your losses or keep the position open to take more profit? You might have a winning trade that’s already in the money by several pips. Then suddenly, you start to worry about a market reversal. At the same time, you also wonder just how much more profit would come in if you rode the trend only a little bit longer.
Whether you want to know more about Trailing Stop Order or any other topics, Earn2Trade has you covered!
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0:00 Music intro
0:13 Intro
2:50 What is a stop order?
4: 47 Value vs percentage
7:02 How it works
11:10 Buy orders vs sell orders
12:12 Trailing stop buy order example
13:53 Trailing stop sell order example
15:17 Final thoughts