A trailing stop order is a type of stop order that will automatically exit a trade when a stock’s price reaches a certain threshold. The stop amount can either be a percentage or a fixed dollar amount. These orders move only in one direction. Trailing stop orders are used to limit losses and lock in profits. For example, if the price of a stock drops by 10% from its peak, the order will automatically issue a sell trade. The order will continue moving upwards only once a new peak is reached.
In addition to its downside protection, a trailing stop order is also an excellent way to protect against a downtrend. This type of order is set to automatically close a trade when the price reaches a certain threshold. In general, a 10% offset is recommended. For example, if a stock costs $70, a trailing stop order would move up to $63 if the price is up to that level. Similarly, if a stock drops 10% to $63 before its target price, a trailing stop order would be placed at a new high of $65.
If the trailing stop order is not set correctly, it could lead to a significant loss. This is especially important when the stock price is volatile. Setting the stop too low or too high could cause a stock to sell prematurely. For example, setting a trailing stop order too high could result in a loss of thousands of dollars, while setting a stop amount too low could cause you to sell at a higher price than you intended.
A trailing stop order only triggers during standard market sessions, or between 9:30 a.m. and 4:00 p.m. ET. If you place it during extended hours, your order will not be routed for execution. If you place your trailing stop order during non-standard market hours, you’ll be unable to sell, or the stock will stop trading altogether. The two main reasons for not routing a trailing stop order are as follows:
A trailing stop order is a great way to limit your losses to 5% of your investment. This order is particularly useful if you’re trying to lock in profits, because it prevents you from making a loss if the stock price rises and the trailing stop loss stays at the same level. It’s also an excellent way to protect yourself against losing money in volatile markets. There are a variety of other advantages to trailing stop orders, and they’re well worth learning about them.
If you’re considering using a trailing stop order to limit your losses, be sure to understand the risks associated with this method of trading. Trailing stop orders can be beneficial to a number of different types of investors. They can help you to limit losses and preserve profits, but you’ll need to learn more about the risks involved. This way, you’ll have more confidence in your decision to use a trailing stop order.