Trailing stop

A trailing stop follows the market at a fixed distance as a trade moves into gain. For a long position, each new high pulls the stop up behind it; if price falls back by the trailing distance, the stop triggers and the trade closes. The stop never moves down. For a short position, it works the other way round.

Example

Illustrative figures: you buy EUR/USD at 1.0800 with a 30-pip trailing stop, so the stop starts at 1.0770.

• Price rises to 1.0850. The stop follows to 1.0820, locking in 20 pips if hit.
• Price rises to 1.0890. The stop moves to 1.0860.
• Price falls back to 1.0860. The stop triggers and the trade closes about 60 pips in your favour, before costs and slippage.

How it works on MetaTrader

On MetaTrader 4 and 5, the built-in trailing stop is managed by your client terminal, not the broker's server. If you close the platform or lose your connection, the stop stops trailing and stays at its last position. Traders who need it running continuously often use a VPS. Some other platforms, such as cTrader, handle trailing stops on the server; check how yours works.

Pros and cons

• It lets a winning trade run without choosing a fixed take-profit.
• It is mechanical, which removes some emotional decisions.
• But a distance that is too tight gets hit by normal pullbacks, and one that is too wide gives back a large share of gains. Many traders base it on ATR rather than a fixed number of pips.
• Like any stop, it can fill worse than its level in fast markets or gaps.

See where to put a stop-loss and order types.