Lexicon · Risk
What is a trailing stop?
A trailing stop is an exit that follows price at a set distance as a trade moves in your favour, and closes the trade if price reverses by that distance.
Updated
(01) Explained
Trailing stop, in plain terms.
A fixed stop stays where you put it. A trailing stop moves up as price rises (for a long trade) but never moves back down.
It lets a winning trade keep running while locking in more of the gain as it grows.
(02) Example
A 3% trailing stop on a long trade
- Buy at $64,200. The stop starts 3% below: 64,200 × 0.97 = $62,274.
- Price rises to $66,000. The stop moves up to 66,000 × 0.97 = $64,020.
- Price then falls back to $64,020 and the trade closes, above the entry price.
- Had price kept rising, the stop would have kept moving up behind it.
(03) Why it matters
What to watch for.
- Too tight. A stop that's too close gets hit by ordinary price noise and ends good trades early.
- Too wide. A stop that's too far away gives back more of the gain before it triggers.
- Test the distance. The right distance depends on the market and timeframe. Backtest a few before settling on one.
(04) In The Market Lexicon
Where it shows up in the product.
Exits such as a 3% trailing stop are part of a strategy's rules in The Market Lexicon, and are tested with the rest of the strategy.
How exits work in the strategy builder →Related terms
Test ideas like this on real market history.
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