I have been trading for some time but have not grasped the concept of trailing stop limits. I notice it as an option on my platform but do not really get how it functions.
Do you use a percentage or a dollar amount? Does it adjust by itself as the price increases?
I tried searching online but found the explanations unclear. It would be helpful if someone could explain it in simpler terms.
Think of it like a moving safety net that protects your profits. When the price goes up, the stop moves up with it but stays the same distance away.
Say you buy at $100 and set a 5% trailing stop. If the price hits $110, your stop automatically moves to $104.50. If it drops back to that level, you get sold out.
Most platforms let you choose between percentage or dollar amounts. Percentage works better for me since it adjusts to different stock prices automatically.
Lost $800 on Apple stock because I didn’t use one of these properly back in 2021.
Basically it moves up with your winning trade but never moves down. So if you’re up $50 and set it at $10 trailing, it locks in $40 profit minimum.
The mistake I made was setting it too tight at 2%. Got stopped out right before a big move up.
Trailing stops follow price changes on their own. I usually set mine at 3-5%.