What Is A Trailing-Stop?
A Trailing-Stop is a Stop-Loss order which is set at a percentage level below the current market price. A trailing-stop adjusts the price at which your position should sell at as the price of your stock fluctuates. You can set a trailing-stop order as a limit or a market order once your stop price/percentage has been hit.
Why Should I Use A Trailing Stop?A Trailing-Stop order allows you to let a stock price continue to rise safely while still locking in profits are limiting your overall loses on a particular stock. Generally speaking, most people do not plan when they will exit a stock; therefore, they risk being stock in a stock that is down by a fairly large margin and they are left hoping that the stock goes back up to break even.
Trailing-Stops help to keep you safe from horrific losses. Most of the time you can avoid being down 50%, 60%, 70%, or more with the use of a Trailing-Stop. Every investors has their own Trailing-Stop strategy and I am not any different. For our stocks that I pick, I have a Trailing-Stop set for a 2% decline from the market purchase. This way, if the stock explods up like
ADCT on July 13, 2010 you can grab those extreme profits, all the while locking in the profits when it falls 2% from its high. We generally expect for a stock to rise roughly 3% to 5% intra-day, but we still want to reduce almost all of our risk. We recommend the use of Trailing-Stops and suggest that you use them too. Everyone has their own tolerance for what they are willing to use. Our is simple, we cut our losses at 2% flat.
