Instead of manually adjusting your stop-loss order, you can enter a trailing stop-loss that will trail, or stay below, the current price by the amount you set. The stop-loss will be automatically adjusted each time XYZ makes a new high.

Thus, a sell trailing stop order sets the stop price at a fixed amount below the market price with an attached "trailing" amount. As the market price rises, the stop price rises by the trail amount, but if the stock price falls, the stop loss price doesn't change, and a market order is submitted when the stop price is hit.

Difference Between a Stop-Loss Order and a Trailing Stop Order

  • The difference between a regular and trailing stop-loss order is that the regular stop-loss must be changed manually, while a trailing stop-loss is adjusted automatically based on the amount or percentage you set.

  • A trailing stop loss saves you the time and effort of recalculating and changing your stops manually and takes the emotion out of decision making, but it has a higher probability of being triggered unnecessarily.

  • Stocks are less likely to reach some price plateaus than others. A stock advances by making a series of higher highs and higher lows. The correct price to place a stop is right below the most recent low.

  • A trailing stop is designed to protect gains by enabling a trade to remain open and continue to profit as long as the price is moving in the investor’s favor, but closes the trade if the price changes direction by a specified percentage. A trailing stop can also specify a dollar amount instead of a percentage.

  • A trailing stop is more flexible than a fixed stop-loss order, as it automatically tracks the stock's price direction and does not have to be manually reset like the fixed stop-loss.

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