I keep hearing about trailing stops but I am not sure what they are or how they work.
Some traders talk about using them but the explanations I found are unclear. How do I set them up and when should they be used?
It would really help me understand this better since I often miss good exit points on my trades.
Trailing stops follow your trade up as it makes money. You pick how far back from the current price, and they automatically move up when the stock rises.
Say you buy at $100 with a 5% trailing stop - it starts at $95. Stock hits $110? Your stop jumps to $104.50. But if the price drops, the stop stays put.
Most platforms let you set them as a percentage or dollar amount. Great way to lock in gains while still protecting yourself if things go south.
Trailing stops adjust as your trade gains value. Choose a distance, like 10 points or 2%. They follow price increases. If price declines, the stop remains fixed. Activates when price hits the stop level.
Trailing stops act as a safety net for your profits. Set them 15 to 20 points back from your entry once you’re in a winning position. As the price increases, your stop shifts up. If the price falls, your stop remains in place and helps you exit with a profit instead of a loss. They are effective in strong trends, allowing you to maximize gains while minimizing risk. Just don’t set them too tight, or regular price fluctuations might trigger them too early.
Blew through three accounts before I figured out trailing stops.
It’s a stop loss that follows your winning trades up. Last month I had a gold trade go from $50 to $200 profit while my trailing stop kept moving higher.
When gold reversed, it triggered at $180 instead of me watching it crash back to breakeven like usual.
Trailing stops help lock in profits and let trades run. They are really useful.