What’s a Trailing Stop Loss?

[ad_1]

Trailing stop losses are stop loss orders where the price in question is set at a pre-determined percentage which is lower than the current market price. The beauty of trailing stop loss is that if the market price increases, the stop loss order price will increase in proportion to the change in market price. But if the market price goes down, the trailing stop loss price will stay the same.

Using a trailing stop loss is a big plus for the investor. Using this approach to investing means that the investor is able to set a limit on the degree of loss that can be sustained. At the same time, the ability of the trailing stop loss to adjust to the upside when the market swings higher means there is no limit to your earning potential. This means that the trailing stop loss approach minimizes the chances of loss but by no means inhibits the ability to increase the value of the investment portfolio.

Another advantage of a trailing stop loss is that the investor can set the stop loss price and thus devote attention to other matters. You don’t need to constantly monitor the current price of the shares involved in the deal. If the unit price of the security falls below the trailing stop loss price, a sell order is automatically executed. The investor need not worry about losing further funds due to the continued decline in share value.

Many analysts recommend setting the trailing stop loss ten to fifteen percent below the current market price. This assumes that the price paid for the shares initially is between five and ten percent of the current value of the shares. In the event that the stock begins to decline in value, the stock will be sold at the trailing stop loss price and the investor will lose nothing or suffer a minimal loss.

Smart Asset.

[ad_2]