How it works
A trailing stop is set at a fixed distance below the current price (for longs). As price rises, the stop rises with it — but if price reverses, the stop stays at its last highest level.
Example: enter long at 1.0800, trailing stop at 20 pips. Price rises to 1.0850, the stop moves to 1.0830. If price then drops to 1.0830, the trade closes locking in 30 pips profit.
ATR-based trailing stops
Many EAs use ATR x multiplier rather than fixed pips. This adapts the trailing distance to current volatility. The trade-off: wider in volatile conditions (more room but gives back more profit on reversal).
What trailing stops do NOT do
They do not protect against gaps; they do not guarantee execution at the stop price in fast markets; a tight trailing stop gets stopped out on normal retracements before the trend completes.