A stop-loss is a fixed price level that closes the position once the market touches it. A trailing stop is a stop whose level follows price in the profitable direction and stays put in the losing direction. In short: stop-loss = static, trailing stop = dynamic, moving with price to lock in accrued gains.
| Criterion | Stop-Loss | Trailing-Stop |
|---|---|---|
| Trigger logic | Fixed price threshold | Distance to high/low (points or %) |
| Behavior when trade moves in your favor | Stays unchanged | Trails along |
| Behavior when trade moves against you | Fires at the fixed level | Freezes at the last achieved level |
| Primary purpose | Cap loss | Lock in unrealized gains |
| Slippage risk in gaps | Same, both become market orders on trigger | Same, both become market orders on trigger |
| Typical use case | Entry with clear invalidation level | Trend trade already in profit |
When a technical level (swing low/high, structure, ATR) invalidates the trade once broken. The stop must stay there regardless of how far price ran beforehand.
When the trade is already in profit and unrealized gains should be locked in systematically without exiting the trend early.
Does a trailing stop replace the stop-loss?
No. A trailing stop is typically only activated once the trade is profitable. The initial stop-loss remains necessary as the loss cap.
Educational content, not investment or tax advice. Neutrally contrasted, not a recommendation of either approach. Trading leveraged products carries risk of total loss.
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