Using Trailing Stop Orders To Lock In Profits In Stock Trading
Using a trailing stop in your stock trading is a handy way to protect your profits as well as limit your losses. One of the obvious and best advantages of using a trailing stop is that it’s possible to limit your losses if the market starts to move against your current position. It is also possible that your gains can be limitless.
The trailing stop gets its name, because it is dynamic, it trails the movement of the stock price as the stock moves in your direction. Let’s say for instance you’ve purchased a hundred shares of XYZ company for $50 a share. Let’s further say that you have decided that you will limit your losses to two dollars and that this will be the size of your trailing stop. If the market immediately moves against you, then all 100 shares will be sold at the stock price of $48 and your loss at this point will be two dollars times 100 shares or $200.
Now let’s examine the different scenario. Let’s examine a scenario that we would actually love to see happen. Let’s say the price of the stock goes in our favor, and then goes to $55 per...
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