Trailing Stop

A trailing stop is a dynamic stop-loss order that moves with the market as a position becomes profitable, but freezes in place if price reverses. If a trader sets a trailing stop 20 pips below entry on a long EUR/USD position and the pair rises 50 pips, the trailing stop has moved to 30 pips above entry - locking in a 30-pip gain while still leaving room for further upside. If EUR/USD then falls 25 pips, the stop is hit and the trade closes 5 pips above the original entry, capturing most of the move.

Trailing stops are designed to solve a common problem: letting winners run while still respecting a maximum giveback. They are particularly useful in trending markets where price can move hundreds of pips in a session, but give back a significant portion before the trend resumes. Without a trailing mechanism, traders either close too early (cutting the winner short) or too late (giving back all the gain). The trailing stop automates a disciplined middle path.

Trailing stops can be set in pips, as a fixed price amount, or as a percentage of the current market price depending on the platform. A common refinement is to use ATR-based trailing stops - where the trailing distance is a multiple of the pair's Average True Range - so that the stop adjusts to prevailing volatility rather than being fixed in a market that may be moving in much larger or smaller increments than the chosen pip value. One important caveat: trailing stops, like standard stops, can experience slippage during fast moves or gaps. Guaranteed stop-loss options, where available, can be applied to trailing stops on some platforms.