What is Trailing Stop Loss?
Crypto Glossary Definition
A specific way of using a stop loss order. As the price of an asset rises, the stop price rises as well. But if the price falls, the stop loss price doesn't change. This is a way to limit losses while locking in gains.
Why Trailing Stop Loss Matters
A trailing stop-loss automatically moves upward as an asset's price rises, locking in gains while still giving the position room to keep running — it only moves in the trader's favor, never backward, which distinguishes it from a fixed stop-loss.
Trailing Stop Loss in Practice
A trader buys into a token at ten dollars and, instead of setting a fixed stop-loss, sets a trailing stop five percent below the current price. As the token rallies to twelve dollars over the next few days, her stop price automatically climbs along with it, staying five percent below whatever the highest price reached so far has been, locking in a growing cushion of profit without her needing to manually adjust anything. When the rally eventually stalls and the price starts pulling back, her trailing stop stays put at its highest reached level rather than following the price back down, since a trailing stop only ever moves in the trader's favor. When the pullback deepens enough to hit that fixed trailing level, her position automatically sells, closing out the trade with a solid gain locked in even though the token's price ultimately continues falling well below where she exited. She reflects afterward that a plain fixed stop-loss set at her original entry price would have let her ride the same rally, but would have given back nearly all of the gain during the pullback before triggering, since it never would have moved up alongside the price the way her trailing stop did. That difference is her main reason for preferring trailing stops on any position she expects to trend strongly.
Still have questions about Trailing Stop Loss?
Ask ARIA, our free AI crypto intelligence agent, for a deeper explanation.
Ask ARIA →