Orders & execution
Trailing stop
A stop that follows the price up, staying a fixed distance below the highest level reached.
How it works
A trailing stop ratchets. If you set it 15% below and the price rises, the stop rises with it; if the price falls, the stop stays put until it triggers.
It is designed to let winners run while defining in advance how much of a gain you are willing to give back.
Where it misleads people
Set too tight, a trailing stop converts normal volatility into a sale. A 10% trail on something that routinely moves 8% a week will take you out of a rising position for no reason connected to the business.
Related terms
More in Orders & execution
- Day order
- Time in the market
- Dollar-cost averaging
- Stop-limit order
- Fill-or-kill
- Fractional shares
- Market timing
- Good-till-cancelled
All 12 Orders & execution terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.