Example of a trailing step
Let’s say you want to open a long position on the FTSE 100, which is currently trading at 7400. You decide to set your trailing stop 100 points away from the current market price, at 7300, and set a trailing step of 50 pips. This means that the market will have to move 50 points before the stop adjusts.
The FTSE increases in value, up to 7450, and your trailing step indicates that it is time for your stop to move to a higher level. Because your step amount is set to 50 pips, your stop-loss is now positioned at 7350.
If the FTSE increased by another 50 points, your stop-loss would adjust to the breakeven point. And if the FTSE rises by the same amount again, your trailing stop would be moved up to a positive 50 points, at 7450.
If the FTSE were to suddenly decline in price, falling back to 7400, your trailing stop would close your position at 7450 and you would still take a profit.