What is a trailing stop?

A stop is an order you set to automatically sell your stock if it hits a certain price level. You should place the stop order right after you’ve bought the stock. That way, your sell order is placed when you are rational and unemotional. If the stop is hit, you’re out, no matter what!

A trailing stop raises the stop price as the stock climbs in order to protect profits. E.g. You can place a trailing stop 15% below the entry price and then move the stop price up when the stop moves higher, always 15% below the highest traded closing price.

Emotions are a trader’s and investor’s worst enemy, and stop orders eliminate emotion from the decision to sell.

Sven Franssen