A trailing stop loss is a method used to protect a position by moving the stop to a higher price if the price of a security rises. Using a trailing stop will allow you to protect your downside and lock in profits as the price rises. You can use a simple moving average indicator to help you identify the trend and trail your stop loss. However, it is vital to understand the ramifications of trailing stop loss before you begin trading.
A trailing stop lose is a stop order that moves in the direction of the trade. It stays stationary when price moves against it. For example, if the price drops by a 10%, a trailing stop would execute a sell order. The price would then move up to $909 and then $1125, locking in the profit. Once the price reverses, the trailing stop would move in the opposite direction. This way, your stop would move up with the price, but the price would still remain below the trailing stop loss.
If you want to use a trailing stop loss order, you should research the security’s price movement. A trend is a key indicator for identifying where a security is headed, and you should learn about it before using it. Generally speaking, the average True Range is a good indicator of where to set your trailing stop limit. If you aren’t sure how to read these indicators, you can check out Edgewonk’s website. There, you’ll see a link that will let you change your trailing stop loss settings.
Another important factor to consider when using a trailing stop loss is the volatility of the stock you are trading. If the stock is extremely volatile, setting a trailing stop loss too high or too low could result in significant losses. You’d be forced to sell the investment if the price suddenly drops. If it drops too much, you’d be sacrificing a profit and putting yourself in danger of losing more money than you’d anticipated.
The downside of using a trailing stop loss is that you will have to sell your stock if the price of your stock drops below the percentage set in your order. Then, the price might rise again and you’d have to wait a few days for it to recover. However, you can always use a trailing stop loss to protect yourself from this potential scenario. It’s important to remember that there is always lag time involved in executing a trailing stop loss order. You’ll often experience bigger losses than you planned.
Another advantage of using a trailing stop loss is that you’ll be less likely to miss your first target profit and can ride the trend without risking any money. A good strategy is to sell half of your position at the first target and keep the other half for a second target profit. Once you’ve reached this first target profit, you’ll be able to determine a trailing stop loss and a second target profit.