Trailing Stop Strategies

In This Lesson

Protecting profits with trailing stops.

Duration: 20 min

Overview

Protecting profits with trailing stops. This lesson will provide you with practical knowledge and actionable insights you can apply to your trading immediately.

By the end of this lesson, you'll have a clear understanding of the concepts and be able to apply them in real trading scenarios. Let's dive into the details.

Key Concepts

ATR-Based Trailing

Trail stop at multiple of Average True Range below highest price. Adapts to volatility.

Structure-Based Trailing

Move stops below previous swing lows in uptrend, above swing highs in downtrend.

Moving Average Trailing

Trail below key moving average (20, 50 MA) that's been supporting the trend.

Chandelier Exit

Professional trailing method: highest high minus 3x ATR. Self-adjusting to volatility.

Practical Application

Now let's put this knowledge into practice. Follow these steps to apply what you've learned:

1. Calculate current ATR for your position's timeframe
2. Identify key support levels: MA, trend line, previous lows
3. Start trailing only after reaching 1:1 risk/reward minimum
4. Move stops only upward (longs) or downward (shorts), never against you
5. Use end-of-day prices for trailing decisions to avoid intraday noise
6. Review stopped positions: were trails too tight or loose?

Common Mistakes to Avoid

Trailing Too Tight

Moving stops too close to price causes premature exits from winning trades during normal pullbacks.

Never Trailing

Keeping initial stop throughout entire trade means giving back all profits when trend reverses.

Arbitrary Trail Rules

Using fixed percentages ignores market structure and volatility differences between stocks.

Key Takeaways

Trailing stops let profits run while protecting gains
The best trailing methods adapt to market structure and volatility
Start trailing after securing initial profit target
Structure-based trailing beats percentage-based every time
Professional traders use multiple trailing methods based on market conditions

Your Next Steps

Ready to continue your learning journey? Here's what to do next:

• Review this lesson's key concepts
• Complete the practical exercises
• Take notes on what you've learned
• Practice with a demo account
• Move on to the next lesson when ready