Trailing is the term used to describe a recently completed time frame, in reference to a set of financial data being gathered. For example, when reading the financial report of a company, the data could be “trailing 12 months,” meaning it covers the previous year, or “trailing 3 months,” meaning it covers the previous quarter. Trailing is also used as a risk management technique, a “trailing stop” order, in which a trader instructs his broker to close out his position when it hits a certain point above/below the stock price’s peak. It is referred to as “trailing,” because that peak moves as the share price does, so the stop order refers to the latest time frame before the share price reversed direction.
As described above, trailing, in terms of a trailing stop order, can be a very effective tool for minimizing risk and maximizing potential profit. When reading financial reports, trailing describes the statistics that enable traders to analyze the short- and long-term strength of a particular company. If a company shows a weak report 12 months trailing, but very strong figures 3 months trailing, it could be an indication that after a difficult period, the company is on the road to recovery.
Of course, the trailing reports should never be the sole factor in technical or fundamental analysis, but they can provide a good insight as to what traders should look for and look at when deciding where to invest funds and what positions to take when trading CFDs.