Risk & Portfolio

Entry at 50, a rise to 59, then a fall to 48. A trailing stop 2 × ATR (1.5) under the highest close sits at 56 once the price reaches 59; the close of 55 on day 10 triggers it, locking in about +10%. A fixed 10% stop at 45 never triggers, and the trade ends at 48, a loss. The trailing stop protects gains; the fixed one only limits the worst case.

• Stops cost money in random-walk markets: you sell after falls and buy back after rises. They help when returns trend (Kaminski & Lo 2014).
• Tight stops are hit by ordinary noise; wide stops let a loser run. ATR-based stops are a compromise, not an answer.
• A stop order becomes a market order: in a gap it fills below the stop.

close = pd.Series([50, 51, 53, 52, 55, 57, 56, 59, 58, 55, 56, 53, 51, 52, 48])   # made up
atr = 1.5
trail = (close.cummax() - 2 * atr)                         # 2 x ATR under the highest close so far
exit_trail = close[close < trail].index[0]
fixed = 50 * 0.90                                          # a fixed 10% stop from the entry
fixed_hit = (close < fixed).any()

Assumes import numpy as np and import pandas as pd. Each snippet carries its own example numbers; the comments say which are made up or simulated.