What's a Trailing Stop Loss? - Trailing Stop Loss Definition Explained with Examples

A trailing stop loss is a stop loss levels that keeps adjusting itself automatically by a set number of pips once the market moves in direction of the trader's open trade position by a number of pips.

For example the trailing stop can be set at 30 pips & set to adjust itself to 30 pips automatically once the currency pair moves up by 5 or 10 pips. This means that this trailing stop loss order will keep trailing the price as long as the price keeps moving in direction of the trader's open position.

This trailing stop loss will close the order once the market starts to retrace and it retraces to the level of the most recent set trailing stop loss level.

A good indicator used to set trailing stop loss levels is Parabolic SAR +technical indicator:

Parabolic SAR Indicator

Parabolic SAR is used by traders to set trailing price stop loss levels

The Parabolic SAR provides good exit points that keep trailing the price of a currency pair.

In an uptrend, you should close long positions when the price falls below the parabolic SAR

In a downtrend, you should close short positions when the price rises above the parabolic SAR.

If you are trading long then the forex price is above the parabolic SAR, parabolic SAR will move up everyday, regardless of the direction in which the forex price is moving. The amount the parabolic SAR moves upwards depends on amount that forex prices moves. Once price moves below parabolic SAR as illustrated and shown on example below, then traders should close their open buy forex trades at trailing stop level provided by Parabolic SAR +technical indicator.

Parabolic SAR - Technical Indicator for Setting Trailing Stop Loss Levels