What is a Trailing Stop Loss?

A trailing stop loss is a type of stop-loss order that adjusts the stop level as the market moves in the trader’s favour. For a long position, 

• The stop level generally moves upward when the asset price increases.
• It does not move downward when the price falls.

For example, suppose a trader buys a stock at ₹500 and sets a ₹20 trailing stop. The initial stop is ₹480. Now, if the stock rises to ₹540, the trailing stop can move to ₹520. However, if the stock subsequently falls to ₹520, the position may be exited.

In contrast, for a short position, the trailing stop loss works in the opposite direction, where the stop level generally moves downward as the price falls.

How to Use a Trailing Stop Loss in Trading

A trailing stop can be specified using either:

• “Fixed price” distance, say ₹20 below the highest price reached
• “Percentage” distance, say 5% below the highest price reached

However, a trailing stop does not guarantee execution at the stop price. During sharp price movements or gaps, the actual execution price can differ from the stop level.

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