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Trailing Stops: How to Lock In Profits Without Exiting Too Early

How trailing stops work, the main methods (percentage, ATR, structure and moving average), and how to choose one that fits your strategy.

By the TradeThink team3 min read

Trailing Stops: How to Lock In Profits Without Exiting Too Early

A trailing stop moves in your favor as a trade progresses, but never against you. It lets a winning trade run while protecting part of the gain. Choosing the right method decides whether you ride a trend or get shaken out by the first pullback.

Four common methods

Percentage trailing stop

The stop stays a fixed percentage below the highest price since entry. Many brokers offer this as an order type.

  • Simple, but ignores how volatile the instrument is.

ATR trailing stop

The stop stays a multiple of ATR below the highest price (for longs). This is often called a chandelier stop.

Structure trailing stop

Move the stop below each new higher low in an uptrend (or above each lower high in a downtrend).

  • Follows the chart's logic. Exits when the trend's structure breaks.
  • Requires judgment about what counts as a swing.

Moving average trailing stop

Exit when price closes below a moving average, such as the 20-period.

In a trend, a trailing stop rises under the price and exits when the trend breaks.
In a trend, a trailing stop rises under the price and exits when the trend breaks.

When to start trailing

Trailing too early is a common mistake. A trade often needs room in its first stage. Many traders:

  • Keep the initial stop until the trade reaches +1R.
  • Then move the stop to break-even.
  • Then begin trailing.

Trailing vs fixed targets

Fixed targets give a higher win rate and smaller, predictable wins. Trailing stops give a lower win rate but let you catch the occasional large move, which can make a big difference to expectancy. A popular compromise is to take partial profits at a target and trail the rest. See scaling in and out.

Test it on your own trades

The best trailing method depends on your instruments and timeframe. Look at your past winners in your journal: with each method, where would you have exited? Compare the average win. In TradeThink, each trade's price chart shows your entries and exits on the bars, which makes this review quick, and MFE shows how much more each trade offered.

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