What Is Trailing Stop?
A trailing stop is a dynamic stop-loss order that follows price in the direction of profit and stays in place when price moves against the trade. If you buy at $100 with a 5% trailing stop, the stop starts at $95. If price rises to $120, the stop automatically adjusts to $114. If price then drops to $114, the position closes.
How Trailing Stop Works
Trailing stops can be fixed-percentage, fixed-dollar, or ATR-based (trailing by a multiple of the Average True Range). ATR-based trailing stops are preferred in crypto because they adapt to changing volatility. During low volatility, the trail is tight; during high volatility, it gives more room. Common settings are 2-3x ATR trailing stops.
Why It Matters for Traders
Trailing stops solve the exit problem — they let winners run while protecting profits. However, they can be triggered by normal pullbacks in a trending market. The solution is using a trailing stop that's wide enough to accommodate normal price noise (2-3x ATR) while still protecting against genuine reversals. Combining trailing stops with manual exit analysis produces the best results.
