One of the hard parts of investing is knowing when to sell once you have a profit. Another is selling too early and missing out on more profit. And, of course, through all that, you still want to protect your profit so it doesn’t become a loss. Which all sounds complicated, but a trailing stop order covers all of this and more.
Define Trailing Stop Order
A trailing stop order is just a stop order with a built-in trigger or trailing price. Unlike a stop order that has a specific, fixed activation price, a trailing stop order has a moving activation price based on a stop parameter. Once triggered, the trailing stop order becomes a market order and the stock is sold at the next best available price. That stop parameter can be set one of two ways:
- By Price –as a dollar amount.
- By Percentage – as a percentage of the current price.
Please don’t confuse price with percent when placing an order. There is a big difference between 10% and $10. And can lead to lower profits or even a loss. Continue Reading…
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