How I Use Trailing Stops to Capture More of the Move
First, WHY I use trailing stops.
Scenario 1: You hold through weeks of chop. The stock finally breaks out, you sell to lock in gains… and it rips another 50% over the next month.
Scenario 2: You build a great thesis, do the research, and enter. The stock turns against you, but you hesitate because “it can still work.” A month later, you’re down 25%.
The common point of failure? The sell button.
I used to sell too early on the way up and wait too long to get out on the way down. Both were frustrating.
Trailing stops helped me take the emotion out of that decision. In my view, they’re one of the most underutilized tools in trading.
Here’s my approach 👇
1️⃣ Calculate the stock’s ATR%
ATR, or Average True Range, measures typical price movement. I use the 14-day ATR divided by the current share price:
ATR% = 14-day ATR ÷ Current Price × 100
2️⃣ Choose a trailing-stop multiplier
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Higher-beta growth stocks: Around 2.5× ATR%
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Large caps or normal-beta stocks: Closer to 2× ATR%
The goal is to give the stock enough room to move without leaving risk undefined.
3️⃣ Set the trailing stop and let it work
Enter the percentage as a trailing-stop order. As the stock rises, the stop ratchets higher. It doesn’t move back down when the stock pulls back.
No constantly second-guessing yourself. No emotional decisions every time price moves.
📊 Example: $Robinhood(HOOD)$
Using the figures in my example:
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14-day ATR: $5.27
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Share price: $109.48
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ATR%: Approximately 4.8%
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2.5× ATR%: Approximately 12%
For a swing trade targeting a move of 40% or more, I’m comfortable giving a high-beta growth stock roughly 12% of trailing room.
Of course, the multiplier should reflect your own risk tolerance and trading timeframe. A trailing stop can also trigger during a normal pullback, and execution may differ from the stop price in a fast-moving market.
The principle is simple: Define your risk upfront, then get out of your own way.
Your goal as a trader isn’t to sell the exact top or avoid every loss. It’s to capture the meat of the move while managing downside risk.
That’s how I use trailing stops. 🎯
Markets are always moving - and sometimes, the best move is knowing what works for you.
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