What is a trailing stop order?

Newcomers to the capital markets try never to miss a good trade. The beginners to trading try to win every little profit in the market. Their goal is only to make profitable decisions and profitable traders. Therefore, they make awful lots of mistakes while trying to make money. In this article, we will discuss trailing order and trailing stop loss and how it can help you.

Stop orders are there to help traders exit a position when they’re about to lose money. Although, the market can trigger your stop loss first and then starts going up again. Therefore, it is important to set the stop orders carefully, to stop the losses and not the profits. The story is different with trailing orders, though.

You should learn about stop losses before you can set a stop loss correctly. Therefore, this article will discuss a specific kind of stop loss, trailing stop loss. You will learn what a trailing stop is. You will also find out how trailing orders work.

Trailing Stop Loss

A trailing stop order is a stop order that adjusts to the asset’s price. You will set the trailing stop at a certain percentage or price point. Then, if the market moves against your position in favor, the trailing order will also move. Therefore, you shouldn’t worry about the best price to enter. Or if the current trend will reverse or not. 

Let me give you an example. Let’s say you set a buy trailing order at 5 percent above the current price. If the asset’s price begins to lose value, the trailing buy order will also decrease. Then, you can see what the trailing means in a trailing stop order.

What is the difference between stop loss and trailing stop?

This article section will explore the differences between a stop loss and a trailing one. As you may already know, a stop loss won’t change its trigger price. Once you set a stop loss price point, it will trigger once the price is reached. Then, the stop loss amount is static.

The trailing stop order is different. The trailing order or trailing stop loss is dynamic. Therefore, the percent or price point you choose for a trailing stop will change. The trailing stop amount will change and will trigger at your price point or even better. Then, you shouldn’t worry about finding the best price. 

What is a trailing stop loss example?

Let’s say you put a trailing stop loss to sell a certain asset. If the trailing amount is reached, the trailing stop will exit your desired position. Either it’s buying or sell. Then, the trailing amount will trigger the stop order. 

But if the asset moves against your trailing amount, the trailing stop loss will also move. This means that if the asset increases in price, the trailing stop amount will also increase and increase. Therefore, you will gain more profit while using a trailing stop loss rather than a stop loss. Then, you are better off using the trailing version.

What is a good percentage for a trailing stop?

You can set the trailing percent from 1% to 30%. It is up to you to choose the best percentage for the trailing stop order. The same is true for the trailing stop loss. Now, in this section, we want to figure out what a good percentage for trailing stop is. 

A good percentage for a trailing order or a trailing limit is between 15 and 20 percent. Then, you can choose a number for your trailing limit or trailing order in this range. Although each situation is different, you should figure out the best number for that situation. Then, there is no trailing percent that suits everywhere.

Where do trailing stop losses go?

When you place a trailing stop loss order, it will move when the asset’s price moves, even with trailing orders. Therefore, the question is, where does it go? In which direction does it move?

The answer is simple. A trailing stop loss will increase if the asset’s price increases. Therefore, you will gain even more profit if the price goes up. This is true even after you set the trailing stop loss. The trailing amount will change.

Then, it is a really good idea for any trader to use the trailing stop loss. Now, let’s explore the trailing order. A trailing stop order, on the other hand, can move either way. When the asset’s price reaches the trailing amount in trailing stop order, it puts the order to action. 

Therefore, if your trailing stop order is a buy order, it will move down with the asset’s price. And if it’s a trailing buy-stop order, it moves down if the asset’s price decreases. Then, the trailing orders will find the best price for you.

What is the 1% rule in trading?

The 1 percent rule is a risk management technique. You can also use the one percent rule to accompany trailing orders or trailing stop losses. The 1% rule says that you should never enter a position with more than 1 percent of your portfolio. Therefore, if you have 15,000 dollars, you are allowed to enter with only 150 dollars.

Then, it puts only a small portion of your portfolio in danger. You can use this along with trailing orders or trailing stop loss. Then, you would never lose a lot of your assets.

FAQ

How does a trailing stop order work?

A trailing stop order will follow the price to find the best price. If the price’s asset moves against your order, the trailing stop order will also follow the price. Therefore, the trailing stop order is perfect if you don’t know the price can move against you any longer or not. Then, use the trailing stop order only if you know how it works.

What is a disadvantage of a trailing stop loss?

The trailing stop losses work best when you use them with less volatile assets. Because there is no guarantee that the price will reach your price point. Therefore, the trailing stop order is not best suited for volatile assets. Then, use the trailing stop loss where volatility isn’t as much.