Orders & execution
What is a Trailing Stop Order and how do I calibrate the percentage/dollar distance?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
A trailing stop order automatically adjusts the stop price as a stock moves favorably, locking in gains while maintaining a fixed percentage or dollar distance below the highest price reached.
How it works
The trailing distance should be calibrated to account for the stock's typical volatility (often measured via Average True Range), balancing protecting profits against being stopped out by normal price noise.
An example
A trader sets a 5% trailing stop on a stock that rises from $100 to $120; the stop automatically moves up to $114, locking in a minimum gain.
Risk & limitations
Setting the trailing distance too tight in a volatile stock can trigger premature exits from normal price fluctuations rather than genuine trend reversals.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.