For Business

Risk & Money Management

When to Use a Trailing Stop

A trailing stop is a stop loss that is lifted behind the price by a set distance as the price climbs, and is never lowered, so it is used on a trade that is moving in its favour when the trader wants the stop to follow without them at the screen. This paper shows you one trailing stop of 100 dollars worked on gold from its 28 August 2025 close, lifted nineteen times and closing the trade on 9 October at 3959.19; the idea as a rope through a cam cleat; the staircase on the daily chart; the same distance on a sideways July, closing 78 cents above where it began; and the Trailing Stop menu on your platform, which runs in the terminal and not on the server.

Difficulty
Beginner
Reading time
5 min
Pages
8
Reviewed by
Saman Rahbar

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One trailing stop, worked out

A trailing stop is a stop loss that follows the price. It is set a chosen distance behind the price, and each time the price makes a new high the stop is lifted to that high less the distance; it is never lowered. Take gold at 3416.46, its close on 28 August 2025, with a distance of 100 dollars an ounce as an example. The stop starts at 3316.46. Worked on the daily highs and lows it was lifted nineteen times, stood at 3959.19 after 8 October, and on 9 October the low of 3944.43 reached it and the trade was closed there. The only number typed in was the distance.

A rope through a cam cleat

Picture a rope through a cam cleat, the fitting on a boat that lets a rope be pulled in and then grips it. Pull the rope in and it holds; let go and it does not pay out again, because the two cams bite the rope on the way back. A trailing stop is that cleat. The price pulling away is the rope being pulled in, the distance is how much rope is out, and when the price turns back the stop stays where the last pull left it. The cleat knows nothing about how far the price will go. It takes in slack and keeps it, and that is the whole of what it does.

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