How a Trailing Stop Uses Distance and Step Thresholds
Summary
This document explains a basic trailing stop for a buy position using two settings: the stop’s distance from the current price and a step threshold that limits how often the stop is changed. At first, the stop is unset. When the bid price rises enough that the bid minus the trailing distance exceeds the entry price, the stop moves to breakeven. Once active, it moves upward to remain one trailing distance below the bid, but only after the price has advanced by at least the configured step beyond the current stop.
The example clarifies the logic and purpose of the step: avoiding modifications on every price tick. It provides no performance evidence, parameter guidance, or treatment of sell positions, gaps, execution costs, or platform-specific behavior. Traders would need to evaluate those details for their own instruments and execution setup.
Key ideas
- A trailing stop can begin inactive and activate after price moves favorably by the chosen distance.
- For a buy position, the initial stop is placed at the entry price once the activation condition is met.
- After activation, the stop follows the bid at a fixed distance, subject to a minimum step between updates.
- The step threshold reduces frequent stop modifications as prices move tick by tick.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.