The trailing stop-loss helps prevent a winning trade from turning into a loser—or at least reduces the amount of the loss if a trade doesn't work out. Some brokerage firms, like Fidelity, offer trailing stop alerts with their accounts. It helps limit your losses in a falling market but still maximize and protect your profits in a rising market. However, I have 2-3 points of caution: Trailing stop loss and trailing stop limits definitely help under normal market conditions because a 5% drop is significant. Trailing Stop: A trailing stop is a stop order that can be set at a defined percentage away from a security's current market price. Trailing Stop Loss A Trailing Stop Loss order adjusts in price with favorable market movement on the security. The result of using a 15% and 20% trailing stop loss levels give you about the same overall result with the 20% stop-loss level leading to higher returns most of the time. Then: If stock ABC reaches a new 52-week high Then has a Last Trade greater than $37 then buy 250 shares ABC at trailing stop of 1%. Under normal market conditions, I even put trailing stop orders at 2% or some small $ amount since there's rarely a large drop on normal days. Or: If .DJI (Dow Jones Industrial Average) Last Trade is greater than 14,050 Or.IXIC (Nasdaq) Last Trade is greater than 2,850 then sell 250 shares ABC at a limit of $32.75. Trailing stop orders definitely help to protect your assets and really help most of the time. You can track up to 50 stocks at a time. These orders are held in a separate order file with Fidelity and are not sent to the marketplace until the order conditions you’ve defined have been met. But they generally expire after 30 or 60 days. TradeStops information never expires and even offers a 30-day risk-free trial. A trailing stop is set on a money basis — you maintain the loss you can tolerate at a constant dollar amount or percentage basis. The best way to explain it is with a couple of examples: You own 100 shares of stock ABC now trading at $50.
A trailing stop is simply a stop-loss order set a certain percentage below the market – and then adjusted as the price rises. Traditional stop-loss strategy - not trailing . Trailing stops use a dynamic process that follows the price: You raise the stop as the trade makes profits. Trailing Stop-loss, equally-weighted total portfolio performance. Click image to enlarge. The downside of using a trailing stop-loss is that markets don't always move in perfect flow. A trailing stop sell order is used for long positions. Trailing Stop Sell Order.