A trailing stop limit order is an advanced version of a stop limit that automatically adjusts your exit level as the stock moves in your favor. Instead of setting a fixed stop price, you define a trailing offset, either by percentage or peso amount, that follows the market price upward while helping protect your gains.
As the stock rises, both your stop price and limit price are recalculated based on the trailing amount and limit offset. However, if the stock reverses, the stop price stops moving and remains at its highest calculated level. Once that stop is triggered, a limit order is submitted at the most recent limit price.
Example: Setting a trailing stop order
You are currently trend following a stock and want to stay invested while momentum remains strong but without giving back too much profit if the trend weakens. You set the following:
- Trailing stop at 8% below the current market price
- Limit offset of ₱1 below the stop price
As the stock climbs and forms higher highs (₱143.30 → ₱146.90→ ₱160.00 → ₱167.80), your stop automatically moves higher as well, from ₱131.80, to ₱147.20, and eventually to around ₱154.20. This dynamic adjustment allows you to ride the trend instead of exiting too early. If the stock pulls back and hits the trailing stop, the system immediately places a sell limit order approximately ₱1 lower, helping you secure profits in a controlled manner.