A trailing stop is a method of placing a stop in which the stop price adjusts as the price of the respective stock fluctuates. For example, if you buy HAL because of an ascending channel and you wish to have the stop manually increase as the stock moves along uptrend support, you would place a trailing stop of say 20 cents. This means the stop will trail the stock price by 20 cents on the way up. The stop will not adjust on downside moves, it will only follow upside moves.
There are two types of Trailing Stops:
Trailing Stop Limit Order: The stop price will only fill if the stock hits the exact stop price. Example; You are long a stock with and the trailing stop price is 120.12. Stock closes at 120.18, then opens at 120.09. The stop will not fill because the stock price is below the exact stop price. The stock must push back up to 120.12 to fill.
Trailing Stop Market Order.: Much more lax than a stop limit. A Stop Market triggers when the price of a stock is at or below the stop price on a long position, or at or above the stop price on a short position.
Related terms: Back Stop, Target, Protective Stop, Bear Trap, Bull Trap