How does 'Trailing Stop Loss' work?

The trailing stop loss allows the stop-loss price to follow the price upwards but remains fixed if the prices start falling, to potentially secure a profit. Trailing limit here is the trail distance from the last peak before fall.

If the security price rises or falls in your favour, the stop loss % moves with it. If the security price rises or falls against you, the stop loss % stays in place.

 

For example, You can put a trailing stop of 5% on your investment

Condition 1: If price rises by 10% from entry condition and from peak if stock price dropped by 5% then stock would be sold automatically. Thus, it offers you a profit protection of not losing more than 5% of your investments. Trailing limit here is the trail distance from the last peak before fall. 

Condition 2 : If the stock price dropped by 5% from entry condition, then your stock would be sold automatically. here it will safe guard your maximum loss and works same as Stop Loss %.   

 

If one had entered the market with a sell, then issuing a buy order only does the opposite, i.e., prices are followed downwards.

Press 'Next' to save the first part and continue creating the second part of the Strategy, please refer How to Build an Algorithm Trading Strategy?

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