Understanding Trailing Stops
What is a Trailing Stop?
A trailing stop is a dynamic stop-loss order that "trails" the market price as it moves in your favor. Unlike a fixed stop loss, which stays at a specific price level, a trailing stop moves up (for long positions) or down (for short positions) with the market.
Why Use It?
A trail can define an exit trigger as a long position reaches new highs. A trigger is not an execution price: gaps, thin liquidity, and broker rules can change the fill. A stop-limit order may not execute at all.
How to Use This Calculator
- Enter Entry Price: Input the price at which you bought the asset.
- Enter Current Price: Input the current market price of the asset.
- Enter Quantity: Input the number of shares or spot units you hold. Contract multipliers and leverage are not modeled.
- Set Trailing Percentage: Choose the percentage distance below your supplied highest price. The default 15% is an illustration, not a recommendation.
- Enter Highest Price Since Entry: Current price alone cannot reveal a past peak. Supply a peak at least as high as entry and current price. The calculator does not retain a price path or adjust broker orders for dividends.
Example Scenario
In a hypothetical example, you bought a stock at $100. It rallies to $120. You set a 10% trailing stop.
- Highest Price: $120
- Trailing Stop Distance: $120 * 10% = $12
- Trailing Stop Price: $120 - $12 = $108
If the trigger reference falls to $108, a matching broker order could activate. An exact $108 fill would give $8 gross profit per share; it is not guaranteed. A later peak of $150 would imply a $135 trigger at the same 10% trail. If price then falls to $140, keep the peak input at $150 rather than resetting it to the current price.
Trigger and Fill Are Different
This calculator submits no orders. Check your broker’s supported order types, trigger reference, session rules, and corporate-action treatment. Read theSEC investor bulletin on stop and trailing-stop orders.
Frequently Asked Questions
What is a good trailing stop percentage?
This calculator cannot select one. Compare the hypothetical trigger distances and gross P&L, then assess your strategy, instrument, and order rules separately. No percentage guarantees a maximum loss or a profitable exit.
Does the trailing stop price ever go down?
For a long position (buying), the trailing stop price ONLY moves up. It never moves down. This is the mathematical ratchet for an unchanged trail percentage. If the market price drops, the trailing stop stays at its highest calculated level until the price recovers and makes a new high, or until the stop is hit.
Can I use this for short selling?
This tool supports long positions only. A short-position trail would use a low-water mark and a trigger above it; borrow costs and short-position risks are not modeled here.