What It Means
A trailing stop-loss is a stop-loss that automatically moves up as a stock's price rises, locking in gains along the way, but stays fixed if the price falls — protecting the position without needing to be adjusted manually.
How It Works
You set a trailing distance — either a fixed rupee amount or a percentage — and as the stock rises, the stop price rises with it, always staying that same distance below the highest price reached. If the stock then reverses, the stop stays put at its most recent level rather than falling with the price, so it eventually triggers and exits the position once the reversal is large enough. This means a trailing stop only ever moves in the trader's favor, never against it.
Example
A trader buys a stock at ₹200 and sets a trailing stop 5% below the highest price reached. As the stock climbs to ₹250, the stop rises with it to ₹237.50. If the stock then falls back to ₹237.50, the position exits there — the trader keeps roughly ₹37.50 of gain per share even though the stock has pulled back from its peak.