In practice
A trailing stop lets a winning trade run without a fixed target. In an uptrend, traders raise the stop beneath each new higher low, or keep it a set number of ATR below price, so profit is locked in step by step.
It suits trending markets, where the hardest part is staying in the move.
What to watch for
Trail too closely and an ordinary pullback takes you out before the trend continues. It always gives back part of the open profit, and in ranging markets it gives back most of it.
Related terms
3 terms- Breakeven stopMoving your stop to your entry once a trade is in profit, so being stopped out costs about nothing instead of a full loss.
- ATRWilder's measure of volatility: how far price typically moves per candle, including gaps. No direction.
- Stop-lossSLThe price where your trade idea is proven wrong and you get out, placed as an order before you need it.