Blog
What is Trailing Stop Loss?
The main aim of a trailing stop is to offer some protection, since gains can be better enabled if a trade remains open, over the span of time where the price is moving to the investor’s favour. The order will then close should the price eventually change its direction, either by the formerly specified percentage or monetary amount.
A trailing stop is generally placed when the initial trade has been placed. In some cases it is however also placed after the trade. Many traders consider it as a good way to lock in profits, or to limit potential losses.
Trailing stop is considerably more flexible than a fixed stop loss order as it can automatically track the direction the price is taking and there is no need for the trader to manually reset it as would need to be done with a fixed stop loss.
It is recommended to use trailing stops which are neither too wide nor too tight. If you place a trailing stop loss which is too tight this could lead to the trailing stop to be triggered easily, sometimes even as a result of normal daily movements. You need to make sure that there is some room for the trade to move. Often a stop loss which is too tight will result in a losing trade.
On the other hand, if the trailing stop is too large the trader will be taking more risk and it could result in unnecessarily large losses or giving up more profit.
Sometimes it is a bit difficult to establish the best possible trailing stop distance. There is no ideal distance since the market is unpredictable and the way stocks move is everchanging.
However it is recommended to use trailing stops as it can reduce the impact of emotional trading.
A trailing stop is generally placed when the initial trade has been placed. In some cases it is however also placed after the trade. Many traders consider it as a good way to lock in profits, or to limit potential losses.
Trailing stop is considerably more flexible than a fixed stop loss order as it can automatically track the direction the price is taking and there is no need for the trader to manually reset it as would need to be done with a fixed stop loss.
It is recommended to use trailing stops which are neither too wide nor too tight. If you place a trailing stop loss which is too tight this could lead to the trailing stop to be triggered easily, sometimes even as a result of normal daily movements. You need to make sure that there is some room for the trade to move. Often a stop loss which is too tight will result in a losing trade.
On the other hand, if the trailing stop is too large the trader will be taking more risk and it could result in unnecessarily large losses or giving up more profit.
Sometimes it is a bit difficult to establish the best possible trailing stop distance. There is no ideal distance since the market is unpredictable and the way stocks move is everchanging.
However it is recommended to use trailing stops as it can reduce the impact of emotional trading.