Trailing Stops: Profit Protection, Activation Rules, and Loss Limits

Summary

The document explains a trailing stop as a stop-loss level that follows the market at a chosen distance, aiming to retain gains as a position moves favorably. It outlines operational rules: activate only once the position is profitable or at break-even, update only when the market-to-stop distance exceeds the trail amount, and never move the stop farther from the market in a way that reduces its protection.

It mentions using either the platform’s built-in trailing-stop feature or an expert advisor to manage orders. The key limitation is that a trailing stop without an initial stop loss does not cap losses if the position moves against the trader before the trail activates. The document provides general rules but no market-specific settings, tests, or evidence comparing trailing stops with other exit methods; the appropriate distance and behavior therefore remain dependent on the strategy and instrument.

Key ideas

• A trailing stop follows favorable price movement at a preset distance.
• It should activate only when a position is profitable or at break-even.
• The stop level should not move in a direction that gives back protection.
• Without an initial stop loss, a trailing stop may not limit losses before activation.
• The document provides operating guidance but no comparative performance evidence.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.