What is a trailing stop in day trading?

Definition of Trailing Stop

A trailing stop is a type of day trading order that allows you to set the maximum value or percentage of loss you’re willing to incur on a trade. If the security’s prices move up or down in your favor, the stop price moves with it. If the security’s prices move against you, the stop remains in place.

How Trailing Stops Work

The trailing stop order is initially placed in the same way as a regular stop order. For example, the trailing stop for a long position (selling an asset you own) is a sell order and is set at a price below the entry point of the trade. The main difference between a regular stop and a trailing stop is that the trailing stop moves whenever the price moves in your favor.

What This Means for Individual Investors

One thing to be aware of regarding trailing stop orders is that they can exit you from the trade quickly, such as when the price pulls back slightly and is not really reversing direction. To try to prevent this scenario, trailing stop orders should be set at a distance from the current price that you wouldn’t expect to be reached unless the market actually changes direction.

How to Set or Move a Stop Loss

Most brokers offer the option of a trailing stop order. Specify the amount of space you wish to give the trade, such as 10 to 20 cents, and double-check your order. The stop loss should now automatically move as the price moves.

Alternatives to Trailing Stop Orders

The main alternative to a trailing stop order is a limit trailing stop order. The only difference is that once the stop price is reached, the order is executed at the specified price or a better price instead of the current market price at that time.

Source: https://www.thebalancemoney.com/trailing-stop-1031394