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Trailing stop

A stop that moves with price in your favor by a fixed distance or percentage, and locks in place when price reverses.

A trailing stop held two ATRs under a rising priceA rising price line with a stepped line below it that climbs whenever price climbs and holds its level whenever price falls, until price drops onto it.PRICE AND A TRAILING ATR STOP2 × ATRstop hittrailing stoppriceIllustrative prices. The stop follows price up and never moves back down.
A trailing stop set by ATR. Average true range measures how far a market typically travels in a session, so a stop placed a multiple of ATR under price leaves room for ordinary swings. The step line only ever ratchets up, and the circle marks where price falls onto it.

A trailing stop follows a winning trade. For a long position it rises as price makes new highs and stays put when price falls. Once price retraces the trailing distance, it fires like a normal stop-order.

The distance is the key decision. Too tight and normal noise stops you out; too wide and you give back most of the gain. Many traders base it on atr.

Example: long at $100 with a $5 trailing stop. Price rises to $120, so the stop is at $115. Price then falls to $115 and you exit with a $15 gain instead of riding it back to $100.

Related: stop-order, stop-loss, atr, take-profit

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