One of the biggest challenges in trading is knowing when to exit a winning trade. Exit too early and you leave money on the table. Hold too long and you watch profits evaporate. Trailing stops solve this problem by automatically adjusting your exit point as the trade moves in your favor. In this guide, we will cover the most effective trailing stop strategies.
What is a Trailing Stop?
A trailing stop is a stop loss that moves with the price. As your trade becomes more profitable, the stop automatically adjusts higher (for long positions) or lower (for short positions). If the price reverses, the stop stays in place and triggers when hit.
The key benefit: Trailing stops let you stay in winning trades as long as the trend continues, while automatically locking in profits if the market reverses.
Types of Trailing Stop Strategies
1. Percentage-Based Trailing Stop
The simplest method. Your stop trails the highest price by a fixed percentage.
Example - 5% Trailing Stop
You buy stock at $100 with a 5% trailing stop.
- Entry: $100, stop at $95
- Price rises to $110, stop moves to $104.50
- Price rises to $120, stop moves to $114
- Price drops to $114, stop triggers
- You locked in $14 profit per share
2. ATR Trailing Stop
This method uses Average True Range to account for volatility. The stop trails by a multiple of ATR, giving volatile stocks more room while keeping tight stops on calm stocks.
Example - 2x ATR Trailing Stop
Stock has ATR of $3.00, currently at $100.
- Trailing distance: 2 x $3.00 = $6.00
- Entry: $100, stop at $94
- Price rises to $115, stop moves to $109
- As ATR changes, so does your trail distance
3. Moving Average Trailing Stop
Your stop is placed just below a moving average that is rising with the trend. This keeps you in strong trends while exiting when momentum fades.
- Fast trail: Use 10 or 20 EMA for short-term trades
- Medium trail: Use 50 SMA for swing trades
- Slow trail: Use 200 SMA for long-term positions
4. Chandelier Exit
Developed by Chuck LeBeau, this trails from the highest high using ATR. It is excellent for trending markets.
Formula: Stop = Highest High (22 periods) - 3 x ATR(22)
5. Parabolic SAR Trailing Stop
The Parabolic SAR indicator automatically calculates trailing stop levels. It accelerates as the trend continues, getting tighter over time.
6. Support Level Trailing Stop
Manually adjust your stop to below each new support level as the price makes higher lows. This requires more attention but often produces the best results.
Example - Manual Support Trail
- Entry at $100, initial stop at $96 (below first support)
- Price makes higher low at $103, move stop to $101
- Price makes higher low at $108, move stop to $106
- Each new support becomes your new stop level
Choosing the Right Trailing Method
Different market conditions call for different trailing strategies:
- Strong trends: Use wider trails (ATR or Chandelier) to stay in longer
- Choppy markets: Use tighter percentage trails to capture quick moves
- Breakouts: Start with support-based stops, switch to ATR as trend develops
- Volatile stocks: ATR-based trails adapt to volatility automatically
- Steady climbers: Moving average trails work well for consistent trends
Common Trailing Stop Mistakes
Avoid these errors that hurt your results:
- Too tight trails: Getting stopped out on normal pullbacks
- Moving stops backward: Never move your stop away from profit
- Ignoring market conditions: Using the same trail in all markets
- Over-optimizing: Constantly changing your trail percentage based on recent trades
- Not trailing at all: Letting winners become losers by holding too long
When to Start Trailing Your Stop
Most traders start trailing after specific conditions are met:
- After 1R profit: Once the trade moves one risk unit in your favor
- After breakeven: Move initial stop to breakeven, then start trailing
- After confirmation: Wait for a higher low to form before trailing
- Immediately: Some traders trail from the very first price move
Combining Trailing Stops with Profit Targets
Many successful traders use a hybrid approach:
Scale out strategy: Take partial profits at a target, then trail the rest.
- Take 50% off at 2R profit
- Trail the remaining 50% with ATR or support levels
- This locks in some profit while allowing unlimited upside
Trailing Stop Settings by Trading Style
Day Trading
- 2-3% percentage trail or 1.5x ATR
- Use 5 or 9 EMA as trail reference
- Adjust every few minutes if needed
Swing Trading
- 5-7% percentage trail or 2x ATR
- Use 20 or 50 SMA as trail reference
- Adjust daily based on new support levels
Position Trading
- 10-15% percentage trail or 3x ATR
- Use 50 or 200 SMA as trail reference
- Adjust weekly or when major support forms
Analyze Your Trailing Stop Performance
Pro Trader Dashboard tracks how you exit trades and shows whether you are leaving profits on the table or holding too long. See your average winner size and optimize your trailing strategy.
Summary
Trailing stops are essential for maximizing profits while protecting gains. Choose your trailing method based on market conditions, your trading style, and the stock's volatility. Start with a simple percentage or ATR trail, then graduate to more sophisticated methods like Chandelier exits or support-based trailing. The key is consistency and letting the system work without emotional interference.
Ready to learn more? Check out our guide on the Chandelier Exit strategy or learn about Parabolic SAR trailing stops.