Trailing stop simply means your stop is moved as price or an indicator moves. For example, if you used a moving average you could set your trailing stop to be the moving average. Or another example would be for every 20 ticks price moves up, you move your trailing stop up 10 ticks.
In virtually every case, a trailing stop is a rookie mistake and will cost you money. Better to learn where to exit the market than to just use a random method like a trailing stop.
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Say you're driving your car up a hill. Behind your car is a long rope with a huge log attached to it. The log is trailing you.
You're driving up the hill, and suddenly, you hit ice, and your car slides backwards and hits the log. The log holds you in place.
You got stopped out.
The problem is, "natural" support and resistance doesn't follow your trade around. If your trade moves up, the support and resistance lines stay in the same place.
With that in mind, a trailing stop limits you because you might get stopped out prematurely. What if the trade slid down, only to move back in your direction?
The correct approach would be to set your stop underneath the "natural" support line. If that location is 10 ticks farther than your trailing stop, so be it. Just decrease your position sizing to accommodate the potential movement, so your risk stays around 2%.
Someone please correct me if I am off base here.
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