Trailing Stop Loss- The Benefit Of Using It

Trailing Stop Loss- The Benefit Of Using It

 

Is it a safe option to use a trailing stop loss in your trades?

 

What is a trailing stop loss?

Trailing stop loss is something that you use to trail your losses so that you protect your profits. You keep pushing the stop loss up in a long trade and down in a short trade and then keep doing it till the price either reaches the target or hits the trailing stop loss.

 

When should you use the trailing stop loss?

The trailing stop loss should be used only after the trade starts to show profits. This means that you can trail the stop loss once the trade has made some significant amount of profits. When you trail the stop loss you make sure that the profits that you have already made on the trade are safe.

 

How to trail the stop loss?

Different traders have different ways to trail the stop loss. Some may use a percentage method to trail the loss while others may use some technical methods to trail the stop loss. The technical approach is also the more systematic way to trail the stop loss. In this method, you start to trail the loss after the price makes a higher high and higher low.

 

So suppose that you are in an uptrend market. You enter the trade in a demand level and then the price starts to move in your favor. You start to trail the stop loss as soon as the price makes a higher high and higher low. The stop loss needs to be kept below the higher low. Make sure that you do not keep the trailing stop loss very close to the lower low but keep it a few percentages away so that the price gets some room to move.

 

Till when you should trail the stop loss

You keep trailing the stop loss when the price makes a higher high and higher low. Thus you keep doing till the price reaches the target level. You are out of the trade when the price either reaches the strategy level or hits the trailing stop loss, whichever comes first.

 

This way your protects your profits and if the trade moves in your favor you do not get out in a loss but keep holding on to the stock with the trend.

Conclusion

The trailing stop loss is the best method to stay with the trend and not get out of the trade early. Also at times the price goes closes to the target price and shifts its trend immediately causing the profitable trade to end into a loss-making a trade.