Trailing Stops

A trailing stop is a type of stop order that moves with the market price of a security. As the price rises or falls in the trader’s favor, the stop price adjusts by a specified percentage or dollar amount. If the price moves against the trader, the trailing stop remains in place and triggers a sell (or buy) order when the price reaches the stop level. Trailing stops are used to lock in profits while protecting against significant losses.

Example

An investor buys a stock at $50 and sets a trailing stop of 5%. As the stock price rises to $60, the stop moves up to $57. If the stock falls back to $57, the trailing stop triggers a sell order, protecting some of the gains.