A trailing stop-loss is a dynamic stop-loss order that automatically adjusts upward as the market price moves in your favor, maintaining a fixed distance in pips from the highest price reached.
How it works
You set a trailing stop-loss a specified number of pips away from the current market price. As the price moves in your favor, the stop-loss moves up with it, always staying the same distance from the peak price. If the market reverses and falls back by that pip distance, the stop-loss triggers and closes your position at that level.
Practical value
Trailing stop-losses allow you to capture extended profits in trending markets while protecting against sudden reversals. They are especially useful in trend-following strategies because they automatically lock in gains without requiring manual adjustment.
Limitations
A trailing stop-loss set too close to entry can trigger prematurely on minor pullbacks. In volatile markets or during news events, price gaps can cause execution at worse-than-expected levels. Choppy markets may also trigger multiple stop-outs without capturing significant gains.
