How Trailing Stops Track Price Retracements
Summary
The document explains trailing stops that follow mark price after immediate placement or after an activation price is reached. A short-side trailing stop tracks the highest mark price and triggers when price falls by a chosen fixed distance or percentage; it can close a long or open a short. A long-side order tracks the lowest mark price and triggers when price rises by the specified retracement; it can close a short or open a long.
Three worked examples show how the watermark and trigger change as price moves. They cover closing a long with a fixed distance, closing a short with a percentage retracement after activation, and opening a long with a fixed-distance retracement. The examples clarify that the trigger follows favorable price movement but stays fixed when price retraces without reaching it. The document describes order mechanics rather than a trading strategy, and it does not discuss slippage, fees, execution failures, or how to choose retracement settings.
Key ideas
- A trailing stop adjusts its trigger as mark price moves favorably after tracking begins.
- Short-side orders track highs, while long-side orders track lows.
- An activation price can delay tracking until the market reaches a specified level.
- A trigger submits a market order that may close or open exposure, depending on the order side.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.