Trailing Stop
Also known as: trailing stop loss, chandelier stop, ratchet stop
A trailing stop is an exit order that moves with the trade in the direction of profit but never against it, locking in gains as a position runs while preserving the original downside cap if it reverses.
A trailing stop is the mechanical answer to the hardest discretionary decision in trading: when to take profit on a winner. Rather than negotiating with the position in real time, the trader pre-commits to a rule (a fixed dollar distance, an ATR multiple, a swing-low, a percentage from the peak) and lets the rule do the exit. The position runs as long as the trend holds; it closes the moment the trail is hit.
The behavioral value is enormous. The disposition effect is hardest to fight on a winning trade because closing it feels like prudence; a trailing stop reframes the decision as inaction (the trail will fire when it fires) rather than as the trader giving up a sure thing. Most of the long-tail winners in any discretionary book come from positions the trader would have closed early without a mechanical trail.
The trade-off is sensitivity. Too tight and the trail kicks the trader out on noise; too wide and it gives back more of the gain than necessary. ATR-based trails are the most defensible default because they auto-scale to the instrument's current volatility, but a fixed-percentage trail can also work — the right answer is the one the trader will actually honor.
MFE-capture ratio above 0.7 across the winning subset; rising rather than falling realized winner sizes over time.
Improves Hold-Time Discipline directly; the diagnosis flags low MFE-capture as a fixable leak.
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