If a trailing stop loss is continuously recalculated based on market price, how it it ever triggered? It seems the trigger price will always be below current market price and therefore never triggered. What am I missing?
2 Answers
If you have a long position with a trailing stop loss, the stop will automatically move up as the price hits a new high. If the price moves down the stop stays still. So once the price hits the trailing stop you will be stopped out.
If you have a short position with a trailing stop loss, the stop will automatically move down as the price hits a new low. If the price moves up the stop stays still. So once the price hits the trailing stop you will be stopped out.
Typically the trigger price is only adjusted when the market price moves favorably.
Example: https://www.interactivebrokers.com/en/index.php?f=605
