Explaining the Trailing Stop Limit and a Better Alternative


When this happens, your trailing stop order may be initiated prematurely because most brokers use data from third party providers. While these orders are good, they also come with several risks. Some of the common risks are stock splits, gaps, liquidity and no market for the asset. In this case, if you set your next stop to move every time the PayPal stoc moves by 10 points, it means that the stop will move to $180 when the stock rises to $260.


First let’s assume that the good trailing stop percentage price falls to $13.50 immediately. In that event, when $13.50 trades, the system will automatically create a market order to sell the entire position. For example, an investor buys a stock at $100 and sets a trailing stop loss order at $90. If the shares rise, the trailing stop loss will move upwards by the same amount, always setting itself $10 below the high price realized while the trade is on. So if the stock rises to $102, the trailing stop loss order rises to $92, and it keeps trailing the stock price as it rises. While standard stop orders can help investors attempt either to limit losses or preserve profits, trailing stop orders offer the opportunity to do both with a single setup.

How to trail your stop loss with Moving Average

But then some devastating news could come out, or a bear market begins. They lost 20% from cost, yes, but they lost 47% from the $150 high. Don’t say “those were just paper profits” – that was real money…their money.

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The order doesn’t fill as the price is moving lower before the order is placed. The order remains in the order book at $11,100 and will be executed if MATIC the price reaches back to $11,100. The risk of loss in online trading of stocks, options, futures, currencies, foreign equities, and fixed Income can be substantial. It is our sincere hope that this Blog Post can help you realize that, in every trade, the exit is equally as important as the entry when it comes to optimizing your overall portfolio success. Go ahead and get started trying the trailing stop features by looking up a stock and checking Technical Insight. Having determined the downside you can tolerate, you can elect to execute your stop exits based on manual or automatic methods.

How to set a Trailing stop in MetaTrader 5

When using an indicator-based trailing stop-loss, you have to manually move the stop-loss to reflect the information shown on the indicator. Many trailing stop-loss indicators are based on the average true range , which measures how much an asset typically moves over a given time frame. If there’s no market for the stock (meaning there’s no bid or no ask available) or if the stock itself is not open for trading, the market order triggered by your trailing stop can’t execute. Trailing stops can only trigger during the regular market session. If the market is closed for any reason, trailing stops won’t execute until the market reopens.

  • If the Stop price is reached, but the price doesn’t reach the Limit price, the order will not be executed.
  • Sure, it is better to sell a stock when there is a fundamental disappointment, which means my initial analysis or timing was wrong, than to sell it just because it hit a stop-loss.
  • Are there cases where I’d lose out by doing this instead of a trailing stop limit?

If ​the trader has a short position, the stop-loss is moved down once apullback has occurred and the price is falling again. The stop-loss is moved to just above the swing high of the pullback. After learning more about the basics of trailing stop-loss orders, you’ll be better able to determine whether this risk-management approach is right for you and your trading strategies.

Understanding a Trailing Stop

Investors should conduct further research before investing. As shown in Technical Insight, the stock is showing upward momentum, calling for higher profit potential for your holding. The My Trading Skills Community is a social network, charting package and information hub for traders. Access to the Community is free for active students taking a paid for course or via a monthly subscription for those that are not.

  • Update it to the latest version or try another one for a safer, more comfortable and productive trading experience.
  • The investors who succeed over time are the ones who minimize the losers and maximize the winners.
  • If the price stays the same or falls from the initial bid or highest subsequent high, the trailing stop maintains its current trigger price.
  • The order executes only between the Stop price and the Limit price as long as matching bids are available in the order book.
  • A trailing stop order, on the other hand, is mostly held in the cloud and implemented once the conditions are met.

Some investors use a fixed hard stop, often a 15%, 20% or 25% loss. Active traders sometimes use very tight stops – 5% or 8% are typical. For every stock they buy, the set a stop loss price at the same percentage level. The investor using a 20% stop might buy a stock for $100 a share and set a hard stop loss at $80 as share. If the stock drops to $81, reverses, and climbs to $150, they will stay in.

When to Use Trailing Stops for Your Investments in the Stock Market

Trailing stop orders are an excellent way to manage your risks in the financial market. However, as you can see above, the orders come with their own risks. Second, they offer a good way to trade for people doing other things. For example, if you trade part time, the orders can help you make money while managing risk. Second, there is a limit order, which directs the broker to initiate a trade at a specific price, above or below the current price. See Indicator Panel for directions on how to set up an indicator — and Edit Indicator Settings to change the settings.

A trailing stop is designed to protect profits by allowing the trade to remain open and continue making profit as long as the price moves in investor’s favor. The order closes the trade if the price changes direction by the specified percentage or amount of money. That can be set to a specific percentage or amount of money of the asset’s current market price. For a long position, the trader places a trailing stop below the current market price, and for a short position, the trader places a trailing stop above the current market price. If the stock price rises from $54.25 to $54.35, the stop-loss would automatically move up from $54.05 to $54.15. If the price moves up to $54.45, the stop-loss moves to $54.25, and so on.

“Above the good trailing stop percentage” refers to an order to buy or sell at a price higher than the current market price. A stop-limit order is a conditional trade over a set time frame that combines features of stop with those of a limit order and is used to mitigate risk. Trailing stops only move if the price moves favorably.

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Whether the profit target amount is based on a position or per share/contract basis is determined by the input parameter. For example, if you initially purchase a stock at $90 per share, ask the broker to place the stop-loss order at $81. When the stock moves to $100, cancel the $81 stop-loss order and replace it at $90.


For example, let’s say, you just purchased BCH at 0.11 https://www.beaxy.com/. Right after buying the crypto asset, you enter a stop-loss order for 0.09 BTC. This means that if the stock falls below 0.09 BTC, your coin will then be sold with the next order type. Options involve risk and are not suitable for all investors.

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