Orders and trading · updated October 21, 2026
What is a trailing stop and how does it work
A trailing stop is a stop-loss that moves up automatically as the price rises, keeping the same distance from the highest price reached. When the price falls by your chosen distance from the peak, the order sells. That way you lock in part of the gain without watching the chart.
How it works
You choose the distance, in percent or in dollars. The broker tracks the highest price since you placed the order and keeps the stop that far below it. If the price falls, the stop stays put. When the price reaches the stop, the order sells like an ordinary stop-loss.
Worked example
You buy at $100 and set a 10% trailing stop. The stock climbs to $140, then falls.
The stop rose from $90 to $126 ($140 minus 10%). If the price drops to $126, you sell with a gain of about 26%.
Worth knowing
Choose the distance based on how much the stock usually moves. For a calm stock, 8-10% can be enough; for a jumpy one, 20% or more.
When a trailing stop can fool you
Too tight: a normal 8% pullback knocks you out of a stock that then keeps rising. The overnight gap: as with any stop, the sale can happen below the stop level. Not every broker offers it for every exchange.
Related terms
Learn it in the Academy
Questions about a trailing stop
Does a trailing stop move down when the price falls?
No. It only moves up when the price makes a new high. When the price falls, it stays fixed until it triggers.
These explanations are for information only. They are not a recommendation to buy or sell.
Back to the glossary