Trailing Stop-Loss: How to Set a Trailing Stop


For example, an investor buys a stock at $100 and sets a trailing stop loss order at $90. If the shares rise, the trailing stop loss will move upwards by the same amount, always setting itself $10 below the high price realized while the trade is on. So if the stock rises to $102, the trailing stop loss order rises to $92, and it keeps trailing the stock price as it rises.

You can also use a Stop Loss,Sell Limit, or Stop Limit. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. You could receive different prices for parts of your order, especially for orders that involve large numbers of shares.

You can easily maximize profit and minimize loss with one move. Losing a few more percentage points than 25% , is fine in this case. It’s much better than the alternative, which is a stock that skips under the limit and keeps crashing. That’s a much worse situation than losing a couple basis points. No matter what trailing stop-loss approach you use, test it in a demo account before utilizing real capital.

How To Set a Trailing Stop Loss

They are risking roughly $0.20 per share, because if the price drops to $54.05, the stop-loss order will execute to get them out of the trade. They may not get exactly $54.05, depending on liquidity and volatility, but the stop-loss still works to limit risk. Please note that there is no guarantee that your limit order will be executed. If the market price does not reach the limit price, your trade will remain unfilled on the order book.

It directs the broker to move the stop-loss depending on the overall price action of the stock. It is based on the distance of an asset from the current market price. You can set it based on a fixed amount of money or a percentage. While trailing stops lock in profit and limit losses, establishing the ideal trailing stop distance is difficult. There is no ideal distance because markets and the way that stocks move are always changing. With a spot trailing stop order, you can place a pre-set order at a specific percentage away from the market price.

Before trading security futures, read the Security Futures Risk Disclosure Statement. Structured products and fixed income products such as bonds are complex products that are more risky and are not suitable for all investors. Before trading, please read the Risk Warning and Disclosure Statement.

When to Use Trailing Stops for Your Investments in the Stock Market

However, as you can see above, the orders come with their own risks. Second, they offer a good way to trade for people doing other things. For example, if you trade part time, the orders can help you make money while managing risk. He is the most followed trader in Singapore with more than 100,000 traders reading his blog every month… Instead, ask yourself what type of trend you want to capture and then use the right technique for it. For starters, you can sell 50% of your position at the first target and keep the remaining to ride a trend.

However, if the price moves sharply past the Limit price, there is a chance that your order won’t be filled and will ‘sit’ in the orderbook after it’s triggered. If the FTSE were to suddenly decline in price, falling back to 7400, your trailing stop would close your position at 7450 and you would still take a profit. Some traders avoid using trailing stop limits because doing so would put them at risk of holding positions that are moving quickly against them. A trailing stop loss order is guaranteed to be executed if the security price reaches the stop loss level, even if the stock price rapidly declines even lower. A stop limit order is not executed if the price quickly falls below the stop limit level.

If your best trailing stop percentage usually considers a GTC order expired after 30 or 60 days, you should be aware of it. You don’t want to risk a sudden drop in your stock’s price without the stop-loss order protection. Make a note of your broker’s time limit so that you remember to renew the order for additional time. A trailing stop is triggered on an open market or activated pending order by setting its length in the right-click menu of a trade. Periodically check the status of the market and open trades. Sometimes it is easier to close a trade manually ahead of schedule than to wait for it to be closed by trailing.

  • This type of order is meant to lock in profits while protecting you from significant losses.
  • In fact, in some cases, you can’t even set a regular stop loss via an exchange and will have to use an app.
  • Another complaint about trailing stop loss order is that they don’t protect you from the major market moves which are greater than your stop position.
  • Trailing stops are effective because they allow a trade to stay open and continue to profit as long as the price is moving in the investor’s favor.
  • They are risking roughly $0.20 per share, because if the price drops to $54.05, the stop-loss order will execute to get them out of the trade.

They got scared, got nervous, wanted to lock in profits. There is also a risk of execution, especially in a time of high volatility. If this happens, the order may be initiated at a different price than what you initiated. For example, a company trading at $100 can decide to split it to $50. When this happens, your trailing stop order may be initiated prematurely because most brokers use data from third party providers. There are several benefits for using trailing stop orders.

Why Should I Use a Trailing Stop?

Trailing Delta is the percentage of movement in the opposite direction you are willing to tolerate. The Trailing Delta ranges from 0.1% to 20.0% by placing the rate manually in the “Trailing Delta” field. Alternatively, options such as “1%” or “2%” are available for quick selection. The spot trailing delta’s range is within 0.1% – 20.0%, while the future’s callback rate range is only within 0.1% – 5.0% . Imagine that you bought stock in Peach Inc. for $30 a share. A trailing stop is in place at, say, 10 percent, and the order is GTC .

Placing the stop-loss too close to the market price may result in an early exit, whereas setting it too far away would mean risking more capital. It allows you to get the maximum benefit from the trend. It is impossible to predict the end of the trend with 100% certainty. By manually closing a trade early, you risk missing out on most of your profits if the trend continues. By moving the take profit in the direction of the trend, you can miss the price reversal moment. In addition, you must constantly monitor the market price.

Change the stop-loss order when the stock price moves significantly. Hopefully, you won’t call your broker every time the stock moves 50 cents. Change the stop-loss order when the stock price moves around 10 percent. \nIn the preceding example, the investor uses a trailing stop percentage, but trailing stops are also available in dollar amounts. In order to exit a trade at an exact price, rather than the next available market price, you would need to set up a guaranteed stop-loss order.

trading strategy

When setting a trailing, take profit is only needed if you are sure of the potential closing level of the transaction or if you use a relatively long trailing length. A trailing insured trade will be closed automatically. At the end of the third correction, open the next short trade. The length of the trailing stop when selling corresponds to the depth of the third correction.

First, the orders provide an excellent way to manage risks in the market as explained in the example above. In most cases, a trailing stop of about 10% is usually adequate. For example, if you have a $10,000 account, having 10% trailing stop means that the order will be stopped when it falls by $1,000. For a buy order, it will be triggered by changes inside the bid price while for a sell order, it is triggered when there are changes in the inside ask price. Second, there is a limit order, which directs the broker to initiate a trade at a specific price, above or below the current price. Moving Average can act as a “barrier” in trending markets so your stops can go beyond it to ride a trend.

If the best trailing stop percentage falls down continuously and reached to $40.10, the trailing stop loss order will be triggered and would be converted into a market order. Here, you will exit the trade at $40.10, which means that you have protected 10 cents of profit per crypto asset. A trailing stop loss is a trailing set on a market order. Trailing stop loss is used to minimize the loss in case of a price reversal in the other direction to the forecast.


The stock of a company is trading at $30 and you place a buy trade. There are two broad types of orders in the financial market. First, there is a market order, in which you ask the broker to initiate the trade at the exact moment. This is the most common type of order among most new traders.

Therefore, I recommend perfecting the work with a trailing stop on a demo account. You can find information about how an order works in MT4. GAL To do this, click the tab “Journal” in the “Terminal” window.

Do professional traders use stop-loss?

Many traders use an absolute stop loss, just like the one in the example above where the stop loss per trade is Rs 5,000. However, many professional traders prefer to place the stop loss at a point where the premise of taking the trade changes.

Exinity Limited is a member of Financial Commission, an international organization engaged in a resolution of disputes within the financial services industry in the Forex market. Your trade will stay open for as long as the price doesn’t go against you by 50 pips. Keep in mind, these percentages might change in response to extreme volatility.

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A higher trailing delta is generally a better bet during volatile periods, while a lower trailing delta is preferable during normal market conditions. The market’s highest/lowest price must reach or exceed the activation price in order to meet the condition. Is a stop-loss order desirable or advisable in every situation? It depends on your level of experience, your investment goals, and the market environment.


You also know that it is a customizable tool that can be tweaked to fit different types of charts or instruments. Trailing stop loss, unlike a normal stop loss, will not work when your chart is offline. Once you close your chart, the trailing stop loss does not work.

For a better stop loss level look at the next research studies. If the researchers excluded the technology bubble the model worked even better. This was because it got back into the stock market too quickly after the technology bubble crash.