Definition
Trailing Stop Loss
A trailing stop loss is a stop order that automatically moves up as the price rises, locking in profits while still protecting against reversals.
Instead of a fixed stop, a trailing stop is set at a distance (in rupees or percentage) below the market price and rises with the stock, never falling. If the price climbs from ₹100 to ₹120 with a ₹10 trail, the stop moves from ₹90 to ₹110, so a reversal locks in gains.
It lets winners run while cutting losers, a core risk-management tool especially in momentum trading. The trade-off: set the trail too tight and normal volatility stops you out prematurely; too loose and you give back more profit.
Related terms
- Momentum InvestingMomentum investing buys stocks that have been rising strongly, on the premise that recent winners tend to keep winning in the near term.
- Bracket OrderA bracket order is an intraday order that simultaneously sets a target (profit) and a stop loss around your entry, automating the exit on both sides.
- Stop LossA stop loss is a pre-set order that triggers an automatic sell (or buy, for shorts) once a security hits a chosen price, capping your loss without you having to watch the screen.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.