Orders and risk
Trailing stop-loss
Also called: TSL, trailing SL
A trailing stop-loss is a stop-loss that moves in the direction of a profitable trade, protecting open gains while the position stays open.
A trailing stop-loss starts as an ordinary stop-loss and then moves in your favour as the trade moves in your favour. It only ever moves one way: up for a buy trade, down for a sell trade. It never moves back towards the losing side. The purpose is to protect open profit without closing the position too early.
There are several ways to trail. Some traders trail by a fixed number of points, some by a multiple of average true range, some under each new swing low or behind a moving average. A step-based trail moves the stop-loss only when a milestone is reached, such as a target being hit. Each method trades room for the position against profit given back.
It matters in Indian intraday markets because moves often reverse sharply in the last hour or after news. A trade that was well in profit at 1 pm can close at a loss by 3:20 pm if the stop-loss never moved. Once the first milestone is reached, trailing turns the worst case from a full loss into roughly breakeven, before costs and slippage.
The common mistake is trailing too tightly. If the stop-loss follows price by a few points, normal pullbacks take you out of a trade that later runs to its full target. The opposite mistake is trailing by feel, moving the level whenever you get nervous. Decide the trailing rule before entry and apply it mechanically.
Worked example
A Bank Nifty buy with the stop-loss trailed in steps
Illustrative numbers: buy Bank Nifty at 56,000, stop-loss 55,880, T1 56,120, T2 56,240, T3 56,360. Initial risk is 120 points. When T1 at 56,120 is hit, the stop-loss moves up to the entry, 56,000, so the worst case is roughly breakeven before costs. When T2 at 56,240 is hit, the stop-loss moves to T1, 56,120, which protects about 120 points. If price then reverses, you exit near 56,120 instead of 55,880.
In WizeBuySell
Trailing is built into every WizeBuySell signal. The stop-loss moves to entry when T1 is hit, and to T1 when T2 is hit. The new level is shown on the chart, so you do not have to work it out. Because the software does not place orders, you must modify your own stop-loss order with your broker each time the level moves.