Skip to content

Trailing Stop Loss

A stop loss by definition is a predetermined amount that you wish for a sale order to be placed on your behalf if the price of the underlying security drops to the amount you chose. This tool is particularly useful if you enjoy trading but are not able to watch the market when it is open. A stop loss is a trading tool commonly used by technical traders. Traders who follow chart patterns, graphs and use carefully plotted amounts to determine a direction a stock is going to move. A stop loss can be used by fundamental traders as well, but usually it is more of a mental threshold for how much they are willing to loose if their fundamental strategy is wrong. Stop losses can also be moved throughout the trade to lock in profits, but that is a manual process and if you are only able to login after the trading day is over you might miss out on some nice upward moves. For example on a volatile day your position could jump 5 to 10% intra day and then end up 2% at the close. Now this is a nice move up don’t get me wrong, but imagine if you saw your position up 10% at noon and were able to move your stop loss to a higher amount. Then when it sells off to settle up 2% you would have locked in a higher rate and then able to get back in the next day if you still favor that companies per share price to keep moving upwards.

A trailing stop loss proposes that an automated formula will move your stop loss up as your stock moves up wards and it will stay at the last up tick it moved to when the stock moves down it will stay at their until it is executed or the stock moves upward again . You can choose either a percentage or fixed dollar amount. You can also choose what the base your stop loss on, bid, ask or last price. Normally this complex trade would be placed at the market for stock trades. However you can use this type of trading on options orders as well and since they are less liquid then stock trades you might want to pick to base our stop loss on the bid or ask.

Posted 12 February 2008 † Trailing Stop Loss § Trailing Stop Loss ‡ Comments (0) ° Tagged: , , , ,

  1. Five Mistakes New Investors Make When Buying Tax Lien Certificates and Tax Deeds 13 Jan 2009, 11:06 am
    Here are some mistakes that can lower your rate of return in your tax lien or tax deed portfolio. These are mistakes that I, or one of my clients, or another investor that I know, has made in the proc. […]
  2. The Investment Gods Are Angry 13 Jan 2009, 1:02 am
    The Working Capital Model (WCM) is an historically new methodology, but with roots deeply imbedded in the building blocks of capitalism, and financial psychology--- if there actually is such a thing.. […]
  3. An Investors Guide to South Africa 6 Jan 2009, 3:01 pm
    Commanding strategically important sea routes between the Atlantic and Indian Oceans, the Republic of South Africa is at the southernmost tip of the African continent. With a coastline of some 2,954 k. […]
  4. WCM Investing - The Process 26 Dec 2008, 2:28 pm
    Most people enter the investment process tip first. They hear something, grab an idea from a popular blog, accept a Cramerism or some motley foolishness, and think that they are making investment deci. […]
  5. An Investors Guide to India 22 Nov 2008, 11:37 pm
    India is a vast country (3.3m square kilometres) with a vast population (1.1bn people), two thirds of which lines in rural locations. Bounded by the Himalayas to the north, it occupies a natural subco. […]
  6. Things To Know Before You Start Investing in Real Estate 22 Nov 2008, 5:37 pm
    "You either have the time or you have the money". This old saying still stands true for property investing. Most people either have the time or they have the money.People that do not have the money to. […]
  7. Value Stock Investing - The November Syndrome On Drugs 22 Nov 2008, 4:05 am
    Every fall, especially in opportunity rich markets like this, I encourage investors to think about some year-end strategies that make the final calendar quarter a special time in all markets. Several. […]
  8. Can You Become Financially Free Fast With Real Estate? 21 Nov 2008, 9:37 am
    The objective is to buy low and either sell high or have loads of rental income that you can live on for the rest of your life. That means that you must have the knowledge and understand markets extre. […]
  9. What are Hedge Funds? 19 Nov 2008, 7:48 pm
    Hedge funds are similar to mutual funds but with several important differences. First, hedge funds are private funds that are typically only open to wealthy, experienced investors. Second, these funds. […]
  10. 7 Steps to 40% Annual Returns in the Markets 18 Nov 2008, 9:36 am
    Just a couple of decades ago it would have been almost unfathomable for the retail investor to consider generating consistent returns above 20% per year. Indeed, those who competed in arguably the mos. […]