Placing a trailing stop loss ensures that when you take a position and when the position you’ve taken is moving in the direction that you want it to move in, you exit with a small profit/lower loss as against the loss that you would have suffered if you’d placed a normal stop loss order.
Assume your view on Reliance Industries is bullish and for that reason you buy Reliance at 1045. You place a Stop Loss order at 1040 and a target order at 1055.Let’s assume the stock moves until 1054, does NOT hit your target order and drops down to 1040. This would mean that the position that you took at 1045 now ends up making a loss despite of moving in your direction.
Now let’s assume you’d put a trailing stop loss. When the stock price moved up, just the way you wanted it to, the stop loss gets updated and when the Stock price went to 1054, your SL order would have gotten updated from 1040 to maybe 1048/1049. Now if the stock price drops back, you’re atleast making a minimum profit as against losing, as happened in the first case.