Trailing Stop Orders: Definition, Example

The goal of every trader is to maximize profits from price movements while maintaining optimal risk levels. A classic risk management tool is the stop-loss order, which automatically closes a trade if the price moves against the forecast. To enhance profitability with minimal risk, traders can:

• Manually adjust take-profit levels as the market moves.
• Use a trailing stop, which automates profit protection.

While manual adjustments allow for maximum trend exploitation, they require constant monitoring. Trailing stops offer a more efficient long-term solution, though they may sacrifice some profit potential.

Key Topics Covered

• What Are Trailing Stop Orders in Forex?
• How Trailing Stops Work
• Benefits of Trailing Stop Orders
• 5 Tips for Trading with Trailing Stops
• Calculating Trailing Stop Loss
• Trailing Stop Order Example
• Expert Advisors for Automation
• Alternatives to Trailing Stops
• Trailing Stop vs. Stop-Loss Orders
• Trailing Stop Strategies
• Advantages and Limitations

What Are Trailing Stop Orders in Forex?

A trailing stop loss is a dynamic order that follows the asset’s price at a preset distance, locking in profits as the trend progresses. It’s ideal for traders who can’t monitor positions continuously but want to capitalize on trends.

How Does a Trailing Stop Work?

1. Trade Opens: A long position is initiated (e.g., at point 1).
2. Price Rises: The trailing stop moves upward, maintaining the set distance (e.g., 2 to 3).
3. Correction Occurs: If the price drops and touches the trailing stop (5), the trade closes automatically.

Profit = Distance between entry (1) and exit (5).

Setting a Trailing Stop on MT4/MT5

1. Open the asset’s chart (e.g., ETHUSD).
2. Place a market order.
3. Right-click the trade in the Terminal → Select Trailing Stop → Set distance (e.g., 50 pips).
4. The trailing stop appears as a dotted line (SL) on the chart.

👉 Learn more about MT4 trailing stops

Why Use Trailing Stop Orders?

• Ideal for long-term strategies or multi-asset portfolios.
• Automates risk management during volatile news events.
• Faster execution than manual adjustments.

5 Tips for Trading with Trailing Stops

1. Use Price Action Patterns: Set trailing stops after trend reversals (e.g., pin bars, double tops).
2. 50/50 Rule: Close half the trade at the first target; trail the rest.
3. Match Volatility: Adjust trailing length based on asset volatility.
4. Stay Disciplined: Avoid manually overriding the trailing stop.
5. Automate: Use Expert Advisors (EAs) for precision.

Calculating Trailing Stop Loss

• Timeframe-Based: M30-H1: 15–25 pips; H4: 40–50 pips.
• Fibonacci Levels: Set trailing below key retracement levels (e.g., 0.382).
• Support/Resistance: Place trailing just beyond key levels.

Example: For a trade opened at $39,000 (BTC) with a $4,000 trailing stop:

• If price rises to $47,000 then reverses to $43,000, the trade closes at +$4,000 profit.

Trailing Stop Order Example

Scenario:

• Buy BTC at $39,000; TP at $48,000; Trailing Stop at $35,000.
• Price peaks at $47,000, reverses, and triggers trailing stop at $43,000.
  Outcome: $4,000 profit (vs. $7,000 manual close or $5,000 loss with static stop-loss).

Trailing Stop Expert Advisors

Automate trailing stops with EAs like Trailing Gator Forex or VTrailing, which offer:

• Auto-trailing for all trades.
• Customizable activation rules.

👉 Download Expert Advisor scripts

Trailing Stop vs. Stop-Loss Orders

| Feature | Trailing Stop | Stop-Loss |
|------------------|------------------------|-------------------------|
| Dynamic | Yes (follows price) | No (static) |
| Profit Lock | Yes | No |
| Best For | Trending markets | Predictable reversals |

Advantages of Trailing Stops

1. Automated Profit Protection: Locks gains without manual intervention.
2. Trend Maximization: Captures extended moves.
3. Risk Control: Limits losses to the trailing distance.

Limitations

1. Correction Risk: May close trades prematurely during deep pullbacks.
2. Platform Dependency: Requires stable connection (VPS recommended).

Key Takeaways

• Use trailing stops in trending markets (H1+ timeframes).
• Avoid in scalping or sideways markets.
• Test strategies on demo accounts before live trading.

FAQ

What is a trailing stop?

A dynamic order that follows the price to lock in profits and limit losses.

How do I set a trailing stop?

Right-click an open trade → Select Trailing Stop → Set distance.

What’s the ideal trailing stop length?

Depends on volatility: 15–50 pips for forex, adjusted for asset-specific ranges.

Does a trailing stop work offline?

No—requires an active platform connection (use a VPS).