TrailingStop

Trailing stop is a type of stop order designed to protect gains and limit losses by moving with the market price. It is set at a specified distance from the current price and can be expressed as a fixed dollar amount, a percentage, or an indicator-based value such as the average true range (ATR).

For a long position, the trailing stop rises as the price advances and stays a fixed distance below the highest price reached. For a short position, it falls as the price declines and stays a fixed distance above the lowest price reached. The key feature is that the stop level adjusts with favorable price movement but not with adverse moves.

When the price touches the trailing stop level, the order is triggered and becomes an exit order. Depending on the order type, it may execute as a market order or as a stop-limit order, which can help control fill price but risks not filling in fast markets.

Trailing stops offer automatic risk management, help lock in profits, and reduce emotional decision-making. They can be used across assets such as stocks, futures, and forex, and are commonly available in many trading platforms. They also have limitations, including potential slippage from gaps, whipsaws in volatile markets, and the possibility that a stop order may not fill at the intended price.