How to Use a Trailing Stop Loss


A trailing stop loss is a type of order that you can set to automatically lock in a percentage loss whenever the price of your stock moves past a certain level. A trailing stop loss is the perfect balance between a stop loss and a profit booking order. Regardless of which market you are investing in, it will protect your profits. Trailing stop losses are used for options and futures. In this article, we will cover how to implement a trailing stop loss on your trades.

To use a trailing stop loss, first determine how volatile a stock is. For example, a stock may drop from $60 to $20 in one session, but after a few days, it could rebound to a higher price and lock in your profits. This risk is called the “lag effect” since it means that the price of the stock is not immediately known when a trailing stop order will trigger. However, this is rarely a problem with trailing stop orders.

A trailing stop loss can be set as a GTC or day order. In most cases, GTC orders last 120 days, but some allow for an unlimited number of days. Once you have calculated the distance between the current price and the trailing stop loss, you can set a trailing stop loss limit accordingly. This strategy will automatically move the stop loss limit as price moves. Therefore, it is a must-have for any trader!

Before you set a trailing stop loss, analyze the stock’s volatility and historical volatility. The risk of loss is lower, but the reward is higher than the risk. Moreover, when a stock is making a new high, it is advisable to rein in the trailing stop. If a stock is making a new high, a trailing stop can prevent your profits from increasing. This is why many online brokers now offer trailing stop services.

Another way to use a trailing stop loss is to use an investing software. The latter is more commonly used by traders who monitor their investments on a daily basis. In most cases, it is possible to set up a trailing stop loss order with most brokers. But if you don’t want to use a trading software, you can also use manual trailing stop loss. When a stock falls below the trailing stop loss order percentage, the stock will be automatically sold.

In a study published by a leading academic, a simple trailing stop loss strategy helped investors achieve higher returns in the stock and bond markets. Its success was due to its ability to limit losses to a significant extent, regardless of the market’s volatility. It is also important to remember that a recession is just a phase of the economy and stock market. It will be back up soon enough to make you a happy investor.

Another benefit of a trailing stop loss order is that it allows you to maximize profits. By automatically tightening your stop loss order as the price rises, you can limit your overall loss to $500. A trailing stop order is the perfect option for maximizing profits in the stock market. However, you should be aware that you can lose as much as 10% of your investment. That’s why it’s important to understand how a trailing stop works.