Glossary · Risk & Execution
Trailing Stop-Loss
Last updated:
A trailing stop-loss is a stop-loss that moves in the direction of a profitable trade — rising behind a long position as price rises, falling behind a short as price falls — so it locks in gains while never moving backward. Where a fixed stop-loss only caps the initial risk, a trailing stop converts open profit into protected profit as the trade works.
Common trailing rules in algo systems: trail by a fixed amount of points or percent, trail to the low/high of the last N candles, or trail using a volatility measure like ATR or a supertrend line.
Example
You go long NIFTY futures at 25,000 with an initial stop at 24,950 and a 50-point trail. As price reaches 25,050, the stop rises to 25,000 — break-even. At 25,120, the stop trails to 25,070. Price then reverses and hits 25,070: the system exits with 70 points, about ₹5,250 on one lot of 75 (hypothetical, before costs). Without the trail, the same reversal could have run back to the original stop for a 50-point loss. The cost of trailing: a strong trend that shakes 55 points mid-move would have stopped you out before the real run.
Why it matters
Trailing rules embody a genuine trade-off — tighter trails protect more profit but get shaken out by normal noise; looser trails ride trends but give back more. There is no universally correct setting, which is exactly why the trail distance should be backtested like any other parameter rather than chosen by feel, and then left alone in live trading.
In INDfolio AI, trailing stop rules can be defined in plain English and tested across years of NSE data — see Backtesting.