The one-bar, or one-candle trailing stop loss, aggressively moves the stop loss as each bar or candle closes. This reduces risk quickly, locks in profits, and prevents holding through a pullback.

The one-bar or one-candle trailing stop loss is aggressive and effective when attempting to capture a sharp price move. I use it sometimes when trading price action strategies in high-momentum volatile markets when holding through a pullback could see profits erased quickly. I use it primarily for day trading, but it could also be adapted to swing trading on virtually any time frame.

The goal is to get into a trade using price action, which tells us when the price is likely starting a bigger move. Then, the trailing stop loss captures a chunk of that move. This trailing stop loss doesn’t hold through any sort of pullback. If you have a hard time holding through a pullback, or end up bailing out of a trade when it pulls back more (or takes longer) than you expect, then this trailing stop loss method may be for you.

This type of trailing stop loss, or any type of trailing stop loss, is not a requirement. You may opt to use a profit target instead, or another way of locking profit. This is just one option to consider when there is high momentum or you expect high momentum on a trade.

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Implementing the One-Bar Trailing Stop Loss

The bar trailing stop loss follows the most recent price bar or candle.

• For a short trade, and with the price moving lower, the stop loss is moved to just above the high of the most recently completed price bar/candle. 
  • It only moves down, never up.
• For a long trade, and with the price moving higher, the stop loss is moved to just below the low of the most recently completed bar/candle.
  • It only moves up, never down.

A few examples are shown on the following chart.

One Bar Trailing Stop Loss Pros and Cons

This isn’t the type of trailing stop loss you want to use with every strategy. It is meant to capture bursts of momentum. That means the strategy it is used with needs to be good at pinpointing when those bursts may occur. If you can capture the bursts, the trailing stop loss captures the immediate momentum. This prevents holding though a pullback, which could turn into a reversal.

Due to the aggressive nature of the trailing stop loss, the risk of the trade is reduced very quickly. This means losses are typically small, along with lots of small winners, and the odd big winner. It is still possible to capture large trends with this type of trailing stop loss. When price is running, it may do so for extended periods of time, without hitting the stop loss. 

Here is an example of snagging a big winner using the EURUSD Session High Low Day Trading Strategy. While a 2:1 reward-to-risk is typically used to capture a quick profit, if the price runs (with this strategy or another), the aggressive trailing stop loss may harness a much larger profit. In this case, about 10:1, or a 10% gain on the account if risking 1% on the trade.

If you want to hold to capture big gains more of the time (but also hold through some pullbacks), this isn’t the trailing stop loss to use. Possibly try a moving average, Renko charts, or a multiple of Average True Range (ATR) if you want to hold through some of the price gyrations for larger gains. Many people struggle to stick with their strategy and make lots of mistakes when the price starts to pull back. If you are one of those people, consider using this type of method as it will greatly simplify the trading process.

This trailing stop loss is designed for the active trader. Get into a trade, trail the stop loss, and take profits with the trailing stop loss. Jump back in if a new opportunity presents itself. I have used this trailing stop loss method on every time frame; one-minute, five-minute, hourly, four-hour, daily, and even weekly charts.

Customizing the One-Bar Aggressive Trailing Stop Loss

The base model works well, but customizing it may work better for you. There are three customizations I will discuss here: buffers, multiple candles, and combining with a profit target.

Consider adding a buffer. Instead of placing your stop loss right below the low of the last candle on a long, or right above the high of the last candle on a short, consider giving it a set amount of room. This may need to be adjusted for each pair or for each stock. 

If day trading, you may opt to give it one, two, or three pips/cents of extra wiggle room. If trading an hourly chart, you may give it five pips/cents, or 10 pips/cents on a daily chart. These are just examples. The buffer you give will depend on what forex pairs and stocks you are trading and on what time frame. 

Adding a buffer will sometimes save you from an early stop out, but it also means you’re giving up a bit more profit when the price actually reverses.

Another option you could consider is using a two-bar or two-candle trailing stop loss. Instead of using the low (if long) or high (if short) of the last candle, use the low or high of the last two candles. This once again provides more wiggle room for the trade. It will likely keep you in trades longer, helping to eliminate some of the pre-mature stop-outs, but on the flip side, you will be giving up more profit when the price reverses. 

The aggressive trailing stop loss could also be combined with a “mental profit target” (not physically placed): if the price is running aggressively in your favor after entry, use the trailing stop loss to potentially capture a bit extra profit. If it is not running after entry and you aren’t seeing the initial high momentum you hoped for, stick to the profit target or implement the trailing stop loss only if there is high momentum as the price moves near and through the original profit target.

There is no perfect formula. The goal is simply to extract profit, and customizing the base model of the strategy may work better in doing that for you. Test out some variation to see which method you like best.

Price Action Entries and Trailing Stop Losses

We just discussed a trailing stop loss that can be used when trading price action. As for entries based on price action, check out the following video. It highlights how to monitor price by comparing the size of price waves. This will often tell us when a correction is ending and the price is about to resume the trend. 

We won’t always be accurate with our entries. Sometimes the price looks like it is about to move one direction but then moves the other—a false reversal. That is fine. This stop loss will often reduce our risk if we get any movement in our direction. We get out, and then take another trade if the opportunity is there.

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