How a trailing stop works
A trailing stop is a stop-loss that follows the price as it moves in your favour, locking in profit while still protecting against a reversal. You set it a fixed distance from the current price; as the price rises on a long, the stop rises with it, but if the price falls, the stop stays put. It lets winners run while ratcheting up the floor under your gains.
Worked example
You buy at $50 with a trailing stop set $2 behind. The stop starts at $48. The price climbs to $55, and the stop trails up to $53. The price then reverses; when it hits $53, the stop triggers and you exit with a $3 profit, instead of riding it all the way back to $50. The trailing stop captured most of the move without you having to watch it.
Trailing stops on Volity
A trailing stop suits trend trades where you want to stay in as long as the move continues but exit automatically when it turns. On Volity you set the trail distance to match the instrument’s volatility: too tight and normal noise stops you out early, too wide and you give back more on the reversal. It is a tool for letting profits run with discipline.
Why it matters
The trailing stop solves the hardest part of a winning trade, when to exit, by automating it, but a poorly sized trail either chokes the trade early or surrenders too much. Match the distance to volatility. Related: stop order and take-profit order.
Learn more in our forex trading guide.
