Trailing Stop-Loss

Trailing stop-loss is a stop-loss that does not have a fixed stop-loss position. Once you enter a position regular stop-loss has a fixed position and does not move with the price action, while trailing stop-loss will. Learn more about regular stop-loss here.

Trailing stop-loss is a great way to increase your profits by being able to catch waves. Rather than having a fixed exit target trailing stop-loss raises the stop-loss with the price action meaning that the stop-loss will always be just under the current price. Once the upwards trend reverses and the stop-loss is now directly under the current price.

With trailing stop-loss, you do not use a take profit because the price action could go upwards multiple percent at a time with the stop-loss following right behind the price action.

For example, your trailing stop-loss is set to be 1%, which means if your position falls by 1% you will exit the position, this is true for both trailing stop-loss and regular stop-loss. If the price goes up the trailing stop-loss will follow the price action placing the new stop-loss always 1% under the current price so that it catches the trend and exits once the trend is over because the new price will reverse into the stop-loss sooner or later. Regular stop-loss does not move unless moved by hand/program.

Image source: PatternsWizard

As you can see trailing stop-loss is a very powerful tool that can help you increase your profits by locking in profits gained and allowing you to ride out green waves.

For more information (also the sources) visit: Investopedia and PatternsWizard