Trailing Stop is a feature used in trading that is activated with a trigger level determined after a position is opened. It follows a certain distance from the current market price, with the use of a stop loss. When the price drops to the tracked level, the position is closed. As the price continues to rise, the trailing range and stop loss level are also adjusted.
For instance, let's say we have entered a position for X parity at 100 units based on our buying conditions. To set our Trailing Stop, we can activate Trailing Stop at the 5% level, with a following distance of 2%. When the position reaches the price of 105 units, the Trailing Stop setting is activated and starts to follow 2% behind the 105 level, resulting in a stop loss level of 102.9.
If the price falls to 102.9, the position is closed with a profit of 2.9%. However, if the price continues to rise, a new stop loss order is placed 2% of the market price, and the position remains open.
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