This is not investment advice. The information provided is for educational and informational purposes only and does not constitute a recommendation to buy or sell any financial product.
A trailing step is a stop-loss that adjusts in discrete increments rather than continuously. The classic trailing stop moves with every tick; a trailing step only moves when the price has moved a minimum amount. The step reduces the number of order modifications and is useful in volatile or choppy markets.
This article is a practical walkthrough: how the trailing step differs from a standard trailing stop, when it makes sense, and how to set it up on a typical platform.
Trailing step vs standard trailing stop
The standard trailing stop adjusts with every price tick. A 1% trailing stop on a stock at $100 starts at $99. If the price moves to $100.50, the stop moves to $99.495. If the price moves to $101, the stop moves to $99.99. The stop adjusts continuously.
The trailing step adds a minimum increment. A 1% trailing stop with a 0.5% step on the same stock starts at $99. The stop only adjusts when the price moves at least 0.5% (i.e., to $100.50 or higher). At that point, the stop recalculates to maintain the 1% trail from the new high. The next adjustment only happens at $101.0 (another 0.5% from the previous high).
The result: a smaller number of order modifications. A volatile stock that whips back and forth might trigger 20 stop adjustments on a standard trailing stop, but only 4-5 on a trailing step. Each adjustment is a server call, an order modification, and potentially a small fee. The trailing step reduces that overhead.
When the trailing step makes sense
Three scenarios:
- High-volatility names. A small-cap tech stock that moves 3-5% intraday. The standard trailing stop adjusts hundreds of times. The trailing step reduces the adjustments to 5-10.
- Intraday trading on volatile days. A trader using a 2% trailing stop on a stock that opens with a 5% gap. The standard trailing stop fires the moment the price reverses. The trailing step gives the trade more room before the stop fires.
- Reducing order churn. A trader who wants to avoid the visual noise of constantly adjusting stops. The trailing step keeps the stop stable for longer periods, which is easier to monitor.
When it doesn't make sense
Three scenarios where the standard trailing stop is better:
- Low-volatility, trending names. A utility stock that moves 0.5% per day. The trailing step and the standard trailing stop behave nearly identically. No reason to add the complexity.
- Scalping or short-term trading. A 30-second trade doesn't need a step. The standard trailing stop is faster to respond.
- Trades where the gap risk matters. The trailing step's bigger increment means a bigger gap can blow through the stop. For positions held overnight or through earnings, the standard trailing stop is tighter.
How to set up a trailing step on a typical platform
The exact steps vary, but the structure is similar across Interactive Brokers, Tastyworks, TradeStation, and most tier-1 platforms:
- Open the order ticket for the position. Right-click on the position or open a new order.
- Select the order type as "trailing stop" or "trailing stop-limit." Most platforms have this in the order type dropdown.
- Set the trail amount. Either a fixed amount, a percentage, or a volatility-based amount (ATR).
- Set the step amount. Some platforms have a "trailing step" or "increment" field. Enter the minimum movement required for the stop to adjust. Other platforms don't have a built-in step but allow you to set the trail amount higher to simulate a step.
- Submit the order. The trailing step is now active.
The platform also lets you adjust the trail and step after submission. The new parameters apply going forward; existing high-water marks are not reset.
Common variations
Trailing step with profit target (OCO)
Combine the trailing step with a profit target using an OCO (one-cancels-the-other) order. The trailing step handles the downside; the profit target handles the upside. The first to fire closes the position; the other cancels.
Trailing step with time stop
Add a time-based stop: the position is closed after a fixed number of days, regardless of the trailing step. Useful for trades with a defined holding period.
Trailing step on a percentage basis
Most platforms allow the trail and step to be set in percentage terms. A 2% trail with a 0.5% step is straightforward. The platform converts to dollar amounts internally.
What can go wrong
Three patterns:
1. The step being too large
A 1% step on a 5% trailing stop is fine. A 3% step on the same stop is too large — the position can give back too much of the unrealized gain before the stop fires.
2. The platform not supporting trailing steps natively
Some platforms only support standard trailing stops. The work-around is to use a larger trail amount, which approximates a trailing step.
3. Confusion with the standard trailing stop
The trailing step is not the same as the standard trailing stop. Some traders set up a "trailing step" thinking it's the standard feature, then discover the behavior is different.
How to evaluate
When setting up a trailing step, ask:
- Does the platform support native trailing step orders? (Test with a small order in a liquid name.)
- What's the minimum step amount? (Some platforms cap the step at 0.1% or 0.5%. Smaller steps are finer-grained.)
- Does the step work on both sides of the trail? (Long: trail up only. Short: trail down only. Both should work.)
- What's the order modification behavior? (Each step adjustment is an order modification, which may be free or may carry a small fee.)
- Does the platform show the trail history? (Some platforms show the high-water mark and the trail distance in real time.)
The answers to these questions are what determine whether the platform handles trailing steps well. The feature is rarer than the standard trailing stop; the implementation varies.
FAQ
Is a trailing step the same as a standard trailing stop?
No. A standard trailing stop adjusts with every price tick. A trailing step only adjusts when the price moves at least the step amount. The trailing step is coarser but reduces order modifications.
What's a good step amount?
Depends on the trail and the volatility. A common starting point: step = 25-50% of the trail. For a 2% trail, a 0.5-1% step is reasonable. For a 5% trail, a 1.25-2.5% step is reasonable.
Can I use a trailing step with a profit target?
Yes, using an OCO order. The trailing step handles the downside; the profit target handles the upside. The first to fire closes the position; the other cancels.
Do all brokers support trailing steps?
No. Some brokers support only standard trailing stops. Check the platform documentation. If the broker doesn't support trailing steps, the work-around is to use a larger trail amount to approximate the behavior.
Related resources
Where to start
If you want to use trailing steps, the practical first step is to set up a paper-trading account with a broker that supports the order type and test the behavior with small positions. See our broker table for the current list of platforms with trailing step support.