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Trailing stop losses are stop loss orders set at a percentage below the current market price that adjust higher if the market moves higher, minimizing loss while allowing for potential return. It also allows investors to focus on other matters as sell orders are automatically executed if the unit price falls below the final stop loss price. Setting the trailing stop loss at 10-15% below the current market price is recommended.
Trailing stop losses are stop loss orders in which the price involved is set to a predetermined percentage that is less than the current market price. The beauty of the trailing stop loss is that if the market price increases, the price of the stop loss order will increase in proportion to the change in the market price. But if the market price goes down, the final stop loss price will remain the same.
Using a trailing stop loss is a great benefit to the investor. Using this approach to investing means that the investor can set a limit to the degree of loss that is possible to incur. At the same time, the ability of the trailing stop loss to adjust higher when the market moves higher means there is absolutely no limit to the potential to earn a return. This means that the trailing stop loss approach minimizes the chances of loss, but does not inhibit the ability to increase the value of the investment portfolio.
Another advantage of a stop loss is that the trader can set the stop loss price and then focus on other matters. There is no need to constantly monitor the current price of the shares involved in the deal. If the unit price of the share falls below the final stop loss price, a sell order is automatically executed. The investor does not have to worry about the loss of more funds due to the continuous fall in the value of the shares.
Many analysts recommend setting the trailing stop loss at ten to fifteen percent below the current market price. This assumes that the price paid for the share initially is within five to ten percent of the share’s current value. In the event that the shares begin to fall in value, the shares will be sold at the final loss price and the investor will lose nothing or incur a minimal amount of loss.
Smart Asset.
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