Trailing Stop

A trailing stop is a dynamic stop-loss order that automatically moves in the direction of your profit as the trade progresses. If you set a 20-pip trailing stop on a long position, the stop follows the price upward — always 20 pips behind the highest point reached. If price reverses by 20 pips from that peak, the trailing stop closes your trade.

The beauty of trailing stops is that they let winners run while protecting accumulated profit. In a strong trending move, a trailing stop can capture far more profit than a fixed take-profit order. Instead of closing at a predetermined level, you stay in the trade as long as momentum continues.

The drawback is that trailing stops can get triggered by normal retracements within a trend. A 20-pip pullback that would have reversed and continued higher instead closes your trade prematurely. The trailing distance needs to be calibrated to the pair's typical volatility — using ATR (Average True Range) to set the distance is a common approach. Too tight, and you get stopped out by noise. Too wide, and you give back too much profit before the exit triggers.