A Trailing Stop is a tool used for risk management in trading, and its primary goal is to protect profits while allowing the price to continue moving in the direction of the trade.

How does a trailing stop work?

Instead of setting a fixed stop loss when entering the trade, a trailing stop is dynamic, meaning it moves with the price movement in your favor, but does not move if the price retraces against the direction.

Practical example:

You bought a currency at a price of $100.

You set a trailing stop at $10.

If the price rises to $110, the stop loss becomes $100 ($110 - $10).

If the price rises to $115, the stop loss becomes $105 ($115 - $10).

But if the price starts to drop from $115 to $113, $110, $108... the stop loss remains at $105.

If the price reaches $105, the trade is automatically closed, securing a profit of $5.

Benefits of a trailing stop:

Protecting profits: It allows you to gradually lock in profits.

Reducing losses: If the market reverses after reaching a certain profit, the trade is closed before it becomes a loss.

No need for continuous monitoring: It moves automatically with the market.