Trailing stop-loss: how it works and how to set the distance
A trailing stop moves up as the price makes new highs and never moves down. It lets a winning position keep running while steadily locking in more of the gain.
Key takeaways
- A trailing stop ratchets up with new highs and never loosens.
- The trailing distance is the trade-off between room to breathe and profit given back.
- Volatility-based trails (ATR, Chandelier) adapt to the stock; percentage trails do not.
- Not every broker or account type offers native trailing orders, so some investors trail manually.
How a trailing stop works
A trailing stop is set a fixed distance below the highest price reached since you started trailing. If a stock rises from $100 to $120 with a 10% trail, the stop moves from $90 to $108. If the stock then falls, the stop stays at $108. The rule that defines it: the level can only move up.
Percentage trails
The simplest trail is a fixed percentage below the high. It is easy to reason about, but like any fixed percentage it ignores how much the stock normally moves: too tight for a volatile name, too loose for a calm one.
ATR and Chandelier trails
A volatility-based trail sets the distance as a multiple of Average True Range. The Chandelier Exit is the best-known version: 3× ATR below the 22-day high is a common default. Because ATR expands and contracts with the stock’s behaviour, the trail widens in turbulent periods and tightens when the stock calms down.
Choosing the trailing distance
Tight trails bank more of the gain but get shaken out by routine pullbacks. Wide trails ride longer trends but give back more at the turn. A useful check is to compare the trail distance with the stock’s typical daily range: a trail inside one or two days of normal movement will trigger often.
Native orders vs manual trailing
Some brokers offer trailing stop orders that update automatically; others only offer standard stop orders, or offer trailing orders on some account types only. If yours does not, you can trail manually: review the level on a schedule and raise the stop order when the trailing level has moved up. Never lower it.
Trailing stops in PnLock
PnLock’s Adaptive Protector model computes a Chandelier-style trailing level, 3× ATR below the 22-day high, alongside five other exit models for the same position. You can compare how much room the trailing exit gives against fixed and structure-based levels before placing an order yourself.
Common questions
What is a good trailing stop percentage?
It depends on the stock’s volatility and your timeframe. Rather than one fixed percentage, many investors size the trail as a multiple of ATR so the distance reflects how much the stock normally moves.
Does a trailing stop ever move down?
No. A trailing stop only moves up as the price makes new highs. If the price falls, the stop stays where it is until it is triggered or the price recovers to new highs.
Is a trailing stop the same as a Chandelier Exit?
A Chandelier Exit is one specific kind of trailing stop: it trails a multiple of ATR below the highest high of a lookback window, so the distance adapts to volatility.
Profit Lock
Profit Lock helps investors turn an open position into a clear exit plan. It compares several stop models, grades the quality of each level, and shows the risk before you make a manual decision.