Definition – What does Trailing Stop Loss mean?
A trailing stop-loss order is a forex trading order that closes a losing position when it moves a set number of pips from the current order rate. The order rate is the entry rate (the buy or sell quote) when the trade is initially placed, but it moves with the price action of the trade. If a trailing stop-loss is set on a long position, the number of pips will remained fixed as the price action climbs, but the actual stop level will rise with the price action.
ForexTerms explains Trailing Stop Loss
The trailing stop-loss order is basically a stop loss order that moves up (in a long position) or down (in short position) with the price action of a trade. For example, if a trailing stop-loss is set at 20 pips on a long position with the EUR/USD at 1.2770 and the pair goes down to 1.2250, then the stop-loss is activated and the position is closed – just like a standard stop-loss. However, If the EUR/USD appreciates to 1.2810, then the trailing stop-loss level is adjusted to 1.2790 (1.2810 minus 20 pips). For this reason, the trailing stop-loss is an excellent way to let winning positions run while still protecting against downside risk.