I recently read a book written by Michael Voigt that deals with breakout strategies. It also puts forth a trailing stop strategy for break out traders. The pros of the stop are, that it works in every market and on every time frame. The cons are that it does not work with highly volatile instruments that oscillate a lot.
The basic idea of the trailing stop is to "trail" the price. The stop is basically moved to the closing price of the previous period. However there are some enhancements added to it.
The most important one, is observing the price movements that show signs of oscillation. Always when the price opens and closes within the area of the previous period, we are talking about an "inside bar". The inside bar has nothing to do with candlestick formations. Often when there is an "inside bar" the price tends to oscillate within the next periods. So the stop should be dragged to the close of the period before the previous.
So here is the OMX Helsinki 25 Index on the daily timeframe. As you can see the stop works well when the market is in a trend and continues to make higher highs and lows.
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