Using A Trailing Stop

Using a trailing stop can save you a ton of money, but only if you use it right. If you keep adjusting it downward to keep from getting triggered out to avoid having your position closed, you are defeating the purpose of the trailing stop. Accept the fact that sometimes the trade just goes against you. Close your position and move on. If you think it is going to be a minor bump, don’t adjust your trailing stop, accept the close out and move on.

The purpose of a trailing stop is to close out the position to keep you from losing a large portion of your investment capital if the market moves against you. You need to set the stop immediately after you purchase the stock or option. As the value of your position increases, move the trailing stop upwards. Don’t set it too close or minor corrections will cause it to get triggered, but don’t keep so far away that you lose a lot of money when it finally does get triggered.

You need to spend a little time understanding the movement of the market you are getting into. Some stocks trade differently from others, you need to understand the typical trading range for the stock you are considering.

If you are going to trade the stock market, you should learn as much as you can.