What Is Trailing?
Trailing refers to the property of a measurement, indicator, or data series that reflects a past event or observation. It is usually attached to a specified time interval by which the data trail or over which that data are aggregated, summed, or averaged. Trailing data and indicators are used to reveal underlying trends, but can delay recognition of trend turning points. Trailing can also refer to a type of stop order used by traders.
Key Takeaways
- Trailing refers to a metric, data, or indicator that trails behind the current reading of a price or other measurement or data series.
- Trailing measures can be useful to get at the underlying trend in data and smooth out short term random noise.
- Trailing data or indicators can be helpful to make decisions for investors or businesses by comparing current data to trailing values or trends.
Understanding Trailing
Trailing data or indicators are useful to smooth out day-to-day noise and random variation in a data series. This can help reveal underlying, longer-term trends to support better financial, investment, or business decision making. However, because trailing data or indicators are always necessarily backward-looking they will not react immediately in turning points and shifts in the trend and will always be behind the curve of up-to-date, current data.
Trailing data or indicators can be used to guide decisions based on the relationship between current data and the underlying trend reflected in the trailing indicator. For example, if a stock price crosses above its trailing 3-month average, this might be taken as a sign that a rising trend has developed and it is time to buy.
The number attached refers to the most recently completed time period of specified length, such as 3-year or 12-month. It is most commonly used as "trailing 3-year”, "trailing 12 months," "trailing three months", or "trailing six months”.
Trailing is often attached to a return, ratio, or risk measure to describe the time that a particular set of data is referring to. Often, the trailing 3-year standard deviation will be used as a measure of risk for an investment fund. The trailing 3-year alpha can be used to show how well an investment manager has outperformed their benchmark.
Types of Trailing
Fundamental Stock Analysis
Fundamental stock analysis can also often use trailing characteristics in their modeling processes, such as trailing free cash flow, trailing dividend yield, or trailing price-to-earnings (P/E), price-to-sales (P/S), and price-to-book (P/B) ratios. For example, the earnings in a trailing price-to-earnings ratio refers to the past earnings per share over a certain period—usually 12 months. Trailing 12 months is denoted by the acronym "TTM."
Financial Metrics
Trailing can also be to describe more concrete business statistics outside of financial metrics, such as same-store sales, total unit volume of sales over time, production levels and output, production efficiency or cost metrics, or other data relevant to a business’s operation or production process. These can be used to help business managers make better operational or strategic decisions, or by investors to obtain deeper insight into a company.
Trading Technique
Trailing can also be used to describe a technique, such as a trailing stop order, in which a buy or sell order is linked to a specified relationship between a current price and a limit price set a specified amount or percentage above or below the price. For example, as a price is rising, a trailing stop set 10% below will also rise with the trend. Trailing stops move in one direction only, so if the current price starts to fall, the trailing stop stays 10% below the peak price and is triggered if the current price falls by 10% below its peak. Trailing stops can also be used for sell orders, with the stop set above the current price.
FAQs
It is most commonly used as "trailing 3-year”, "trailing 12 months," "trailing three months", or "trailing six months”. Trailing is often attached to a return, ratio, or risk measure to describe the time that a particular set of data is referring to.
What is the trailing term? ›
Definitions of trailing. the pursuit (of a person or animal) by following tracks or marks they left behind. synonyms: tracking. type of: chase, following, pursual, pursuit. the act of pursuing in an effort to overtake or capture.
What is an example of trailing equity? ›
Example: John purchased a Challenge which has $100,000 starting balance and a Max Drawdown of 10% (trailing on Highest equity), meaning his Max Drawdown limit is set at $90,000. On Day 3 of his Challenge, his equity (open P&L) peaks at $102,000 but then closes trades at a balance of $101,000.
What does trailing 3 months mean? ›
T3, or trailing three months, is measurement of a commercial real estate project's finances for the last 3 months. T3 can be a great tool for investors, since it can help look at a project's most recent profitability, especially if rents or occupancy numbers have recently changed.
What does trailing mean in stocks? ›
The trailing amount, designated in either points or percentages, then follows (or "trails") a stock's price as it moves up (for sell orders) or down (for buy orders).
What is the best trailing strategy? ›
Top 10 Most Popular Trading Strategies
- Trading Strategy #1 – Buy and Hold. ...
- Trading Strategy #2 – Value Investing. ...
- Trading Strategy #3 – Swing Trading. ...
- Trading Strategy #4 – Momentum Trading. ...
- Trading Strategy #5 – Scalping. ...
- Trading Strategy #6 – Day Trading. ...
- Trading Strategy #7 – Positions Trading.
For example, if the last traded price is $15, you set the trail to $1 and the STP to $13 and the limit to $12.50, 50 cents below the stop price, the stock then rises to $17 your new STP price will be $16, and the order will be triggered if the stock price falls to $16 with a limit price of $15.50.
What is an example of a trailing order? ›
So, for example, if you have a $100 share with a trailing stop of $10 and a limit offset of $5, and the share price dropped immediately, it would trigger at $90 with a limit price of $85. However, if the price jumped to $120 before dropping, the stop would trigger at $110 with a limit price of $105.
How do you calculate trailing? ›
Understanding Trailing Price-To-Earnings (P/E)
It is calculated by dividing the current market value, or share price, by the earnings per share (EPS) over the previous 12 months.
What is a trailing 12-month expense? ›
Trailing 12 months (TTM) is the term for the data from the past 12 consecutive months used for reporting financial figures. A company's trailing 12 months represents its financial performance for a 12-month period; it does not typically represent a fiscal-year ending period.
A sell trailing stop order sets the stop price at a fixed amount below the market price with an attached "trailing" amount. As the market price rises, the stop price rises by the trail amount, but if the stock price falls, the stop loss price doesn't change, and a market order is submitted when the stop price is hit.
What is trailing value? ›
The trailing P/E ratio accounts for a company's actual earnings instead of its projected earnings. It is considered one of the most accurate ways of determining how valuable a company (or its stock) actually is; it offers – in a perfect market – a fair valuation of a stock.
What is trailing drawdown? ›
A trailing drawdown is a drawdown that is pegged to your positive account performance. That means that if you increase your profit by $1.00, then your trailing drawdown will also rise by $1.00. All rules, including trailing, use closed and open equity intraday.
What is the trailing return on equity? ›
To find the trailing returns, you would find the current net asset value then subtract it from the net asset value for the beginning of the time period you want to measure. You'd then divide that number by the original value and multiply the result by 100.
What are two examples of equity? ›
What Are Equity Examples? Equity is anything invested in the company by its owner or the sum of the total assets minus the sum of the company's total liabilities. E.g., Common stock, additional paid-in capital, preferred stock, retained earnings, and the accumulated other comprehensive income.
What would be an example of equity? ›
Equity is providing a taller ladder on one side or propping the tree up so it's at an angle where access is equal for both people. A line of people of different heights are watching an event from behind a fence. Equality is giving equal opportunity for each person to get a box to stand on to get a better view.
What is an example of a trailing stop market order? ›
Using a 10% trailing stop, your broker will execute a sell order if the price drops 10% below your purchase price. This is $90. If the price never moves above $100 after you buy, your stop loss will stay at $90. If the price reaches $101, your stop loss will move up to $90.90, which is 10% below $101.
