Trailing stop orders are one of the most valuable tools in a trader’s toolkit — especially for those who can’t monitor the markets constantly. Whether you're a swing trader, part-time investor, or active day trader, understanding how to use a trailing stop order effectively can protect profits and minimize emotional decision-making.
In this guide, we’ll break down what a trailing stop order is, how it works, and why it matters. You’ll learn key strategies, common pitfalls, and how it compares to traditional stop-loss orders. By the end, you'll know exactly when and how to apply this powerful tool to your trading plan.
What Is a Trailing Stop Order?
A trailing stop order is a type of automated trade instruction that adjusts your stop-loss level as the price of an asset moves in your favor. Unlike a standard stop-loss, which remains fixed, a trailing stop "follows" the price upward (in a long position) or downward (in a short position) by a set percentage or dollar amount.
Once the price reverses beyond your specified threshold, the trailing stop triggers a market or limit order to exit the position.
There are two main types:
- Trailing stop market order: Converts to a market order when triggered.
- Trailing stop limit order: Becomes a limit order, aiming for a specific execution price.
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This flexibility makes trailing stops ideal for capturing gains during strong trends while protecting against sudden reversals — all without requiring constant screen time.
How Does a Trailing Stop Order Work?
Imagine you buy a stock at $50 and set a trailing stop at 10%. Your initial stop-loss would be at $45. As the stock rises to $60, the trailing stop automatically adjusts upward, now sitting at $54 (10% below $60).
If the stock continues climbing to $70, your stop moves to $63. But if the price suddenly drops to $62.99, the order triggers, and you sell near $63 — locking in significant gains.
This mechanism allows traders to:
- Ride profitable trends longer
- Automate profit protection
- Reduce emotional interference
It's particularly useful for swing traders and part-time investors who may not be able to monitor positions throughout the day.
Why Should You Use Trailing Stop Orders?
Trailing stops offer several strategic advantages:
1. Automated Profit Protection
They help lock in gains without requiring manual intervention. This is crucial during volatile moves when timing can make or break a trade.
2. Emotion-Free Trading
By pre-setting exit rules, you remove fear and greed from the equation — two of the biggest obstacles to consistent performance.
3. Adaptability to Market Trends
Unlike fixed stop-losses, trailing stops evolve with price action, making them better suited for trending markets.
However, they aren’t foolproof. Overly tight settings can lead to premature exits during normal pullbacks. That’s why proper setup is essential.
When Should You Use Trailing Stop Orders?
Trailing stops shine in trending markets — especially when holding positions overnight or during extended swings.
For example:
- After a strong breakout above resistance
- During earnings momentum plays
- In high-volatility penny stocks with clear directional bias
They’re less effective in choppy, range-bound markets where frequent whipsaws can trigger unnecessary exits.
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Use trailing stops when you want to give your trade room to breathe but still protect hard-earned profits.
How to Use a Trailing Stop Order: 5 Key Strategies
1. Watch Out for Low Volume
Low-volume stocks are prone to erratic price swings. A sudden spike or drop can trigger your trailing stop even if the overall trend remains intact.
Always assess volume before setting tight trailing stops — especially for overnight holds.
2. Fit Your Trade Strategy to Volatility
Highly volatile assets require wider trailing distances. For example:
- A 5–10% trail might work for stable large-cap stocks
- Penny stocks may need 15–25% buffers due to natural price swings
Adjust based on average true range (ATR) or historical volatility patterns.
3. Pay Attention to Shifting Support Levels
Support and resistance levels evolve. A trailing stop doesn’t adapt to new technical levels — only price peaks.
If support shifts higher after a breakout, consider manually adjusting your stop instead of relying solely on automation.
4. Tweak Your Risk to Take Profits
Once a trade becomes profitable, tighten your trailing distance to secure gains. For instance:
- Start with a 15% trail
- Reduce to 8–10% once up 20%
This balances profit protection with room for further upside.
5. Work It Into Your Trading Plan
Your trading success depends on consistency. Decide in advance whether and how you’ll use trailing stops — don’t improvise mid-trade.
Include parameters like:
- Percentage or dollar-based trails
- Conditions for activation (e.g., after X% gain)
- Manual override rules
How to Place a Trailing Stop Order
Most brokers support trailing stop orders through their trading platforms. The process is similar across services:
- Select “Sell” (for long positions) or “Buy to Cover” (for shorts)
- Choose “Trailing Stop” as the order type
- Enter the trail amount (percentage or fixed price)
- Optionally set a limit price (for trailing stop limit)
- Submit the order
The order remains inactive until the trail condition is met, then dynamically updates with new price highs (or lows).
Platforms like OKX and other advanced trading interfaces offer real-time monitoring and customizable triggers.
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Trailing Stop Order vs. Stop-Loss Order: What’s the Difference?
| Feature | Stop-Loss Order | Trailing Stop Order |
|---|---|---|
| Fixed or Dynamic | Fixed | Dynamic |
| Adjusts with Price | No | Yes |
| Best For | Protecting capital | Locking in profits |
| Emotional Benefit | Removes exit hesitation | Automates trend riding |
While both protect against losses, only the trailing stop adapts to winning trades.
What Are the Risks of Trailing Stop Orders?
Despite their benefits, trailing stops come with drawbacks:
- Whipsaw Risk: Normal pullbacks in volatile stocks can trigger early exits.
- No Awareness of Technical Levels: They ignore key support/resistance zones.
- Gaps and Slippage: In fast-moving markets, execution prices may differ significantly from expected levels.
- Overreliance: Relying too much on automation can hinder skill development.
Use them wisely — not as a replacement for sound analysis.
Trailing Stop Order Example
Let’s say you buy Stock X at $6.50 with:
- Initial stop at $6.00 (7.7% risk)
- Target: $8.00
As the stock rises to $7.00, you activate a 5% trailing stop. Now:
- If price hits $7.20, your stop moves to $6.84
- If price drops to $6.83, you exit with a ~$0.33/share profit
Even if the stock reverses sharply, you’ve locked in gains instead of losing everything.
Are Trailing Stop Orders Good?
Yes — when used appropriately. They’re excellent for:
- Part-time traders
- Trend-following strategies
- Profit protection in strong movers
But they shouldn’t replace active monitoring or technical judgment.
Professional traders often combine automated tools with discretionary decisions — using trailing stops as one component of a broader risk management framework.
Frequently Asked Questions About Trailing Stop Orders
What Is a Good Percentage for a Trailing Stop?
It depends on volatility and risk tolerance. Common ranges:
- Low-volatility stocks: 5–10%
- High-volatility/penny stocks: 15–25%
Adjust as the trade progresses.
What Is the Difference Between a Trailing Stop Loss and Trailing Stop Limit?
A trailing stop loss becomes a market order when triggered — guaranteeing execution but not price. A trailing stop limit sets a minimum/maximum price for execution, reducing slippage risk but risking non-fill.
Do Professional Traders Use Stop Orders?
Yes — virtually all professional traders use some form of stop order, whether manual or automated. It's a cornerstone of disciplined risk management.
Can Trailing Stops Be Used in Cryptocurrency Trading?
Absolutely. Many crypto exchanges support trailing stops, making them ideal for highly volatile digital assets.
How Do I Avoid Getting Stopped Out Prematurely?
Set wider trails during high volatility and avoid placing stops at obvious psychological levels where price often wicks through.
Are Trailing Stops Available on All Brokers?
Most major brokers offer them, but availability varies by asset class and region. Always confirm with your platform.
Final Thoughts
Trailing stop orders are more than just convenience tools — they’re strategic assets that help traders stay disciplined and adaptive.
When integrated into a well-thought-out trading plan, they enhance performance by automating profit-taking and reducing emotional interference.
But remember: no tool replaces knowledge, experience, and sound judgment. Use trailing stops as part of a holistic approach — not as a shortcut.
Master the basics, understand market structure, and let technology support your decisions — not make them for you.
Keywords: trailing stop order, stop-loss strategy, profit protection, risk management, automated trading, swing trading, volatility trading