What is a trailing stop and why is it good for some traders? A trailing stop is a special type of trade order where the stop-loss price is not set at a single, absolute fiat or crypto amount; instead, it is set to a certain percentage or a certain currency amount below the market price.
When the price goes up, it drags the trailing stop along with it, but when the price stops going up, the stop-loss price remains at the level it was dragged down to.
Seems like a good way to automatically protect yourself from an investment's downside while locking in the upside, and it actually works!
A trailing stop is a nice cure for lack of self-discipline: it removes some of the emotion from the trading process and offers some capital protection automatically.
But nothing is ideal in this world, so there are some drawbacks to consider:
You need to consider your trailing stop percentage or amount very carefully. If you're investing in something particularly volatile, you could find the stop level triggered fairly frequently.
Frequent trading can have tax implications such as "wash sales" for stock held less than 30 days.
Excessive trading can quickly turn into "churning," with fees and commissions eating into your profits.
Stay focused, and may the trading success attend you!