A trailing stop helps limit the losses in a trade. You can put one in place with most brokers and investing software, or you can manually adjust it. Manually adjusted stops are generally better for traders who constantly monitor their investments. Here are some tips on how to choose the correct percentage level for your trailing stop. Let’s start with a stock that frequently experiences 5% to 8% pullbacks. The average pullback is around 6%. If a stock is frequently experiencing an 8% or greater pullback, you should use a trailing stop of 10% to 20%.
A trailing stop is more flexible than a fixed stop-loss order because it tracks the direction of a stock’s price without the need for a manual reset. Trailing stops can be used by investors in any asset class. Trailing stops can be set as market orders or limit orders. They remain in force until they are triggered by a change in price of the stock. The trailing stop recalculates the trigger price based on the new high price of the stock and subtracts it from the initial bid price.
When trading with a trailing stop order, you must be aware that some stocks have low volumes and can whipsaw wildly. You should leave a bit of wiggle room in your risk settings to allow for the swings. Generally, the stock has support around 2 p.m. eastern time and falls around 2 p.m. The price is likely to drop from its recent high, but you must consider the range of the stock before setting a trailing stop.
When submitting a trailing stop order, you must also consider whether you want to sell at the current market price or a lower price. In conservative trading, you should use a stop limit containing a stop price, and adjust the trailing stop to meet your target. You can also use trailing stop limit orders if you’re looking to make a quick buck. Just be sure to use stop limits on trades that don’t have limit prices.
A trailing stop order is an excellent way to protect your profits and limit your losses without restricting your profit potential. To set up a trailing stop order, you’ll need an order template. The Trailing Stop order type will populate the Order Type data column in the Activity Panel. Next, you’ll need to assign a trailing stop order button to your order. You’ll then select the desired number of ticks from the last traded price.
Another trailing stop is the Chandelier Exit. This strategy uses the average true range indicator (ATR) to estimate volatility and places the stop a multiplier away from the current price. For example, a stop at a five-times ATR (21), for exaample, places the stop at $25 from the high. A 5-times ATR limit would be a five-times ATR ($25 from the high).