I keep hearing the term trailing stop loss and I am confused about it.
I understand it can help protect profits, but I do not know when or how to use it correctly.
Is it worth learning for someone like me who is still grasping the basics?
A trailing stop loss is a type of stop loss that adjusts upward with your trade but never goes down. As the price increases, your stop moves up. If the price decreases, your stop remains fixed.
For example, if you buy at $100 with a 5% trailing stop, it starts at $95. If the price rises to $110, your stop adjusts to $104.50. This way, you secure some profit while still benefiting from any further price gains.
It’s a great tool once you are comfortable with standard stop losses.
My biggest mistake? Setting trailing stops way too tight when I started. Lost tons of winning trades because they’d get stopped out on normal price swings.
Now I go wider - usually 3-5% depending on how volatile things are. Last month I rode a gold rally for days because my trailing stop actually gave it room to move.
Think of it like a bodyguard for your profit. When your trade goes up, the trailing stop follows. When it drops, the stop stays put and protects your gains.
Finding the right distance is crucial. Set it too tight and you’ll get stopped out of winning trades. Too loose and you’ll give back profits. I test different percentages on demo accounts first to see what works for each asset.
Here’s a solid explanation with visuals:
Don’t jump into trailing stops right away. Get comfortable with regular stops first, then add these to your toolkit.
A trailing stop loss helps secure profits as prices rise. It’s worth learning.
Trailing stops adjust with price changes. Set the distance based on asset volatility. Master standard stop losses first.