A trailing stop is a type of stop loss order that can be set to a certain percentage, dollar or pip amount away from the current market price for an asset. It moves above or below associated with the market price.
The trailing stop can be placed below the current market price in a buy postion, while the trailing stop can be placed above the current market price in a sell position. It is designed to lock in profits while minimizing risks by moving along with the market price in the investor’s favor by a specified percentage, dollar or pip amount. The order will be closed when the price changes direction and triggers stop loss.