How it works
You pick a percentage. The stop sits that far below the highest price since you set it. When the price makes a new high, the stop moves up with it. When the price falls, the stop stays where it is. If the price drops to the stop, that is your signal to sell.
| What happens | Price | Highest so far | 15% trailing stop |
|---|---|---|---|
| You buy | $100.00 | $100.00 | $85.00 |
| It rallies | $130.00 | $130.00 | $110.50 |
| It pulls back | $118.00 | $130.00 | $110.50 (unchanged) |
| It falls through | $110.00 | $130.00 | Hit — time to sell |
In that example you exit with a 10% gain instead of riding it back down — and if the stock had kept climbing, the stop would have kept climbing behind it.
Why it helps
The most common leak in real trading records is selling winners too early: taking a quick 5% and watching the stock double without you. A trailing stop replaces the "should I take profit now?" decision with a rule written in advance. A common middle ground is to trim part of the position at a target and let the rest run with a trailing stop.
Choosing the percentage
- Wider than the stock's normal noise. A stop inside the usual daily swing will get hit by ordinary wiggles. A rule of thumb is two to three times the stock's typical daily move.
- Calm, large companies: often somewhere around 8–12%. Volatile names: 15–20% or more.
- Too tight and you get shaken out of good positions; too wide and you give back most of the gain before it triggers.
WhatToTrade's Aggressive Picks size their suggested trailing stops this way — from each stock's own volatility, between 6% and 20%.
The risks
- Gaps. If bad news lands overnight or at earnings, the stock can open far below your stop. A stop does not guarantee your price.
- Whipsaws. In choppy markets a stock can dip through the stop and recover the same week.
- An order versus a reminder. A trailing stop order at your broker sells automatically once triggered (usually as a market order, so the fill can be lower). An alert only tells you — you still decide. Taxes can apply when you sell.
Using it in WhatToTrade
Every holding in your Portfolio can carry an exit plan: a target, a stop, a trailing stop percentage, a review date and a one-line thesis. The app tracks the highest price it has seen since you set the plan and marks the position — At target, Below stop, Trailing stop hit, Review due — and the Portfolio Advisor checks your plans every time it runs. WhatToTrade never places orders; if you want the sale to happen automatically, set the trailing stop order at your broker too.
Not sure whether you are an early seller? Import your Robinhood history and Trading DNA will tell you how long you hold winners compared with losers.