TRAILING STOP

What is trailing stop?
A trailing stop is a modification of a typical stop order that can be set to a specific percentage or dollar amount of the current market price.
A trailing stop is designed to protect profits by allowing the trade to remain open and continue to make a profit as long as the price moves in the investor's favor. The order closes the trade if the price changes direction by the specified percentage or dollar amount.

Understanding the trailing stop
Trailing stops only move in one direction because they are designed to lock in profits or limit losses. If a trailing stop loss of 10% is added to a long position, a sell trade will be placed if the price drops 10% from its post-buy peak price. The trailing stop moves up only after a new high has been established. Once a trailing stop has moved up, it cannot go back down.
A trailing stop is more flexible than a fixed stop loss because it automatically tracks the direction of a stock's price and does not require manual reset like a fixed stop loss.

Trailing Stop Trading
The key to successfully using a trailing stop is to set it at a level that is neither too narrow nor too wide. Setting a trailing stop loss that is too tight can mean that the trailing stop is triggered by normal daily market movement, and thus there is no room for the trade to move in the trader's direction. A stop loss that is too short will usually result in a losing trade, albeit a small one. A trailing stop that is too large does not work in normal market movements, but it means that the trader is taking on the risk of unnecessarily large losses or forgoing more profit than he needs.
Although trailing stops lock in profits and limit losses, setting the ideal trailing stop distance is difficult. There is no perfect distance because markets and the way stocks move are constantly changing. Despite this, trailing stops are effective tools and, like every other method, there are pros and cons here.

Real world example
Let's say you bought Alphabet Inc. (historically pulls back 5-8% before moving up again). These previous moves can help set the percentage level that will be used for the trailing stop.
Choosing 3% or even 5% can be too difficult. Even minor retracements tend to move more, meaning the trade is likely to be stopped out by a trailing stop before the price can move higher.
Choosing a trailing stop of 20% is overkill. Based on recent trends, the average pullback is around 6%, with larger ones around 8%.
A trailing stop loss of 10% to 12% is better. This gives the trading space room to move, but also quickly takes the trader out if the price drops more than 12%. A 10% to 12% drop is larger than a typical retracement, which means something more significant could be happening – basically, it could be a trend reversal, not just a pullback.

Using a trailing stop of 10%, your broker will execute a sell order if the price drops 10% below your buy price. It's 900 dollars. If the price never rises above $1,000 after buying, your stop loss will remain at $900. If the price hits $1,010, your stop loss will move to $909, 10% below $1,010. If the share price rises to $1,250, your broker will execute a sell order if the price drops to $1,125. If the price starts to fall from $1250 and doesn't come back up, your trailing stop order remains at $1125 and if the price drops to that price the broker will place a sell order on your behalf.

The ideal trailing stop loss will change over time. In more volatile periods, it is better to use a wider trailing stop. During quieter times or when the stock is very stable, a tighter trailing stop loss may be effective. However, once a trailing stop loss is set for an individual trade, it should be left as is. A common trading mistake is to increase the risk of a trade one time to avoid losses. This is called loss aversion and can quickly take a trading account down.

Results
Trailing stop is a very useful tool if you know how to use it.
The tool can help you keep your profits on days when you can't follow the price and move the normal stop yourself.
Adding such a useful tool will help improve your strategy and increase your profits.
But do not forget about the correct setting of the trailing stop, the values ​​of which will be different for each instrument.
To more accurately determine the values ​​for the trailing stop, it is worth knowing the average daily movement of the instrument, as in the example above.
Good luck!

Traders, if you liked this idea or if you have your own opinion about it, write in the comments. I will be glad 👩‍💻