Best Practices for Reining in Trailing Stop Orders
Traders who use trailing stop order should be careful not to reset them during momentary dips. They risk a lower effective stop-loss. Reining in the trailing stop should be done when momentum is picking up and the stock is making a new high. The following are some common mistakes to avoid. Keep reading for the best practices. You should not set a trailing stop when you’re not fully invested in a stock.
o You should choose a brokerage that supports trailing stop loss orders. The trailing stop loss order automatically adjusts the stop price of your trade at a specified percentage below or above the market price. Trailing stop loss orders may change your trading strategy, but they are a good option for those who are looking for a certain type of discipline in their trading. While a manual trailing stop loss order requires manual adjustment, a trailing stop loss order can help you limit your losses to 10% of your initial investment.
o Try to avoid selling too much too early. This can lead to a swing trade or a Trend Following trade. For beginners, selling 50% of their position at the first target may result in a more profitable trade than one with a trailing stop loss. Play around with the percentages until you find the best way to make your trailing stop order work for you. Moreover, you should determine your second target profit and trailing stop loss.
o Use a trailing stop to limit your losses and lock in profits. Trailing stop loss is a great tool if you’re unsure about what you’re doing. If your stop is too far from your target price, your trade could be closed prematurely. However, if you set a trailing stop to a higher level than the last one, the trailing stop will be adjusted automatically to lock in your profits.
o Set a trailing stop loss so that the limit will change when the market moves in your favor. This allows you to lock in gains while protecting your profits from being wiped out. You can place your trailing stop loss on a price or a percentage away from the current market price. This way, when a stock reaches your trailing stop loss, it will convert into a market order. This means your trade will take place at the price available when the trailing stop loss has been hit.
