Trailing Stop Order

Trailing Stop Loss and Stop Limit Orders

Trailing stop order, stop loss order, and stop limit orders explained. What is a trailing stop limit order. The use of trading stop orders. Stock market stop orders.

A trailing stop loss order is an order to sell a security at a certain amount below its current price. The trailing amount is set by the trader and it can be any amount of money.

Once the stop is set, if the share price falls by the trailing amount the order will immediately convert to a stop market order. The shares will sell at the current market price.

On the other hand, if the price rises, the trailing stop order will automatically adjust to the current price of the stock.

I’ll give an example:

Let’s say you have opened a position in AAPL at $240 per share. You wish to limit your possible losses to $3 per share. You would enter 3.00 as the trailing amount in the trailing field of the order.

If APPL was selling for $241 per share when you placed the trailing stop order, the stop would trigger at $238. The beauty of the trailing stop is that it follows the share price automatically. If APPL were to rise in value to $245 per share, the stop would trigger only if the shares subsequently fell back to $242.

You would have locked in a profit without having to reset your stop manually.

Stop and Limit Orders

Trailing Stop Limit Order

If the share price rises, both the stop price and the limit price rise with it (by the amounts you specify in the designated order fields). If the price falls, the stop price remains whatever it was at the moment the price began to fall.

If the shares fall to the stop price, the trailing stop converts to a sell limit order with the limit price being the most recently calculated limit price.

The caveat here is that limit orders are not guaranteed to fill. If the price of your shares is falling rapidly, they could fall right through your limit price in which case your order to sell would just sit there unfilled waiting for the price to rise back to the limit amount. And you don’t know when--or even if--that would happen.

This, in my opinion, makes trailing stop limit orders too risky to use.

Stop Limit Orders

It’s an order to sell a stock if and when the shares touch the limit price, but only at the limit price or better. If the price falls through the limit and does not rise back to it, you can take a huge loss.

Buy Stop Order A buy stop order is a type of stop loss order that is used in momentum stock trading. Trading stop order. The use of buy stop orders. Market orders.

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Return from Trailing Stop Order to Stop Loss Order Stop loss order. The use of sell stop orders explained in simple terms. Stop market orders and trailing stop orders. When to use a buy stop order.

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