Stop-Loss vs Trailing Stop: Which Protects Better?
Both stop-loss types protect your capital, but they work differently. A fixed stop-loss stays at one price. A trailing stop moves with the stock price, locking in gains as the trade moves in your favor.
What Is Fixed Stop-Loss?
A fixed stop-loss is set at a specific price below your entry and does not move. If the stock drops to that price, it triggers a sell order. It protects against large losses but does not capture profits.
What Is Trailing Stop?
A trailing stop follows the stock price upward by a set distance (dollar amount or percentage). It only moves up, never down. This lets you ride trends while automatically locking in profits.
Key Differences
| Feature | Fixed Stop-Loss | Trailing Stop |
|---|---|---|
| Movement | Stays fixed | Follows price up |
| Profit protection | None | Locks in gains |
| Best for | Initial risk management | Trend-following trades |
| Complexity | Simple | Moderate |
The Bottom Line
Use fixed stop-losses for initial trade protection and trailing stops when you want to let winners run. Many traders start with a fixed stop and switch to a trailing stop once the trade is profitable.
Frequently Asked Questions
When should I use a trailing stop?
Use a trailing stop when a trade is already profitable and you want to let it run while protecting your gains. Set the trail distance based on the stock's normal volatility.
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