How to find out what percentage I should set a trailing stop order at on a stock? Is there an equation for it


A trailing stop of 5% or less will probably have you trading in and out of positions every week. Instead of always second guessing yourself and fearing the next crash, why don’t you just prepare for it? But there is a definitive way to solve this problem for many kinds of investors. It involves cutting your losses and letting your winners ride.

When the trailing delta is too large, the trailing stop can only be triggered by extreme market movements, which means you are taking on risks of unnecessarily significant losses. For example, say that PI is at $30, and he puts in a trailing stop of $3. If PI rises to $50, the trailing stop will reach $47. If PI then drops from this peak of $50, the trailing stop stays put at $47 and triggers a sell order if PI actually hits $47. \nFor example, say that PI is at $30, and he puts in a trailing stop of $3. There is no universal principle for determining the trailing stop length.

Trailing Stop

So, for every 100 pips, they will have between 60 to 70 pips locked. Learn what you need to know before trading the market. Can help protect potential profits while providing downside protection. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. You cannot completely avoid all trading losses by using Trailing Stop Orders. They are just one way to plan for potential losses.

Because it doesn’t consider the volatility of the markets. This causes many traders to give up and they’ll claim “it doesn’t work”. Not only did the use of the simple stop loss strategy reduce losses it also increased returns. In the chart you can see that the 15% loss level would have given you the best result over the largest part of the 11 year test period.

Order Type In Depth – Trailing Stop Sell Order

Let’s also assume that the distance from point 1 to point 2 is 40 pips. Below is an example of how a pro trader might use a trailing stop loss order to ride a trend. Both of these scenarios have been known to hurt traders. Luckily for us, there are tools in Mitrade trading platform that can help minimize such emotional dilemmas. But let’s assume the share price remains above the Trailing Stop price and rises to $14.00.

  • The order closes the trade if the price changes direction by the specified percentage or amount of money.
  • Trailing is set at local extremes or slightly above/below the levels.
  • And, on the other side, to place a trailing stop sell order, the activation price must be higher than the current market price.
  • If you set it too far, you risk unnecessary losses, but if you set it too close to the market price, you may be closed before your trade has a chance to make a profit.

best trailing stop percentage stops are effective because they allow a trade to stay open and continue to profit as long as the price is moving in the investor’s favor. This may help some traders cope psychologically with volatile markets. If the market price climbs to $10.97, your trailing stop value will rise to $10.77. If the last price now drops to $10.90, your stop value will remain intact at $10.77. If the price continues to drop, this time to $10.76, it will penetrate your stop-level, immediately triggering a market order.

Once you know your strategy, you have to consider the average volatility of the security. A trader who focuses on bonds or blue-chip stocks will probably set tighter stop-losses than one who focuses on volatile securities like Bitcoin or meme stocks. One common tactic for those with a long position in a stock is to move the stop-loss up only after a pullback has occurred, and the price is once again rising. The stop-loss is moved up to just below the swing low of the pullback.

The algorithm for setting trailing stops on MT5 is similar to MT4. Let’s assume that they set their trailing stop loss order to be 40 pips. This means that after they have 80 pips of profit, the trailing stop loss will lock in 40 pips.

Your stop price will always remain 5% above MEOW’s lowest price. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone.

If you a trailing stop, it is unnecessary to set a separate stop-loss order, but it will help WAVES in case of a connection break. The set trailing will be displayed on the chart as a horizontal dotted line marked with SL (stop-loss), which will move after the price. In the “Terminal” window, a note about the triggering of trailing will appear in the S/L column. As a result, the transaction is closed automatically. Every person and position will have different risk tolerance and risk.

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There are two conditions to activate a stop order. The average volatility for the period can be found in calculators on analytical portals. This professional adviser consists of two modules, the adviser itself and the script.

limit sell

Therefore, a limit price is required to place a Spot Trailing Stop Order. In the preceding example, the investor uses a trailing stop percentage, but trailing stops are also available in dollar amounts. A trailing stop isn’t a “set it and forget it” technique. Of course, if the investment falls, the stop-loss order prevents further loss. Should the stock price rise substantially, remember to adjust your trailing stop accordingly. Keep raising the safety net as the stock continues to rise.

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Indicators can be used to create a trailing stop-loss, and some are designed specifically for this function. 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. Another risk is when there is no market order for the asset. When this happens, it means that your trailing stop order may not trade. However, this is a problem that is not very popular.

The order remains in the order book at $11,100 and will be executed if the price reaches back to $11,100. To prevent such cases, make sure to place trailing stops at a distance from the current price that does not expect to reach unless the market changes its direction. And, if the price falls to $39.70, the stop loss will fall to $39.80. If the price increases to $39.80 or higher, the order will be converted into a market order and you will exit the trade with a gain of $20 per share. Trailing stops – Finally, a trailing stop loss is a specific type of stop loss orders which, unlike a hard stop, automatically moves with each new price tick.

buying power

If the correction depth is greater than the trailing length, the trade will close automatically while the price continues the main movement. Choose the trailing length according to the volatility of the asset. A long trailing stop will not move on assets with low volatility. And vice versa, when trading volatile stocks, a short trailing will close the trade ahead of schedule.

Still, stop-loss orders are appropriate in many cases, especially if the market seems uncertain (or you are!). \nIs a stop-loss order desirable or advisable in every situation? Trailing stops are an important technique in wealth preservation for seasoned stock investors and can be one of your key strategies in using stop-loss orders. This gives them an indication as to how much fluctuation in the price they can expect over the course of the trading day. However, any significant unexpected volatility, such as that caused by breaking news, wouldn’t be taken into account. Learn more about trailing stop-loss orders, along with examples of setting a trailing stop and how to use them on our Next Generation trading platform.

The key to using a trailing stop successfully is to set it at a level that is neither too tight nor too wide. A stop loss that is too tight will usually result in a losing trade, albeit a small one. Trailing stops only move in one direction because they are designed to lock in profit or limit losses. If a 10% trailing stop loss is added to a long position, a sell trade will be issued if the price drops 10% from its peak price after purchase. The trailing stop only moves up once a new peak has been established.

At this point, the trader would know that they have a guaranteed 120 pips no matter what happened. So, when the price moved from 1 to 2, nothing happened because 80 pips had not been made. Well, you can check out Mitrade platform and see how simple it is to use the trailing stop. She lives in the Chicago area with her son, dog and two cats.

Is it a good idea to do trailing stop-loss?

What this does is significantly reduce your downside risk. With any investment, you will lose at most, the trailing stop amount. If the stock goes up instead of down, you get to ride it all the way up. Once it stops its run up, the trailing stop locks in your profits and protects you from further price decreases.

An exit point is the price at which a trader closes their long or short position to realize a profit or loss. Cory Mitchell, CMT is the founder of He has been a professional day and swing trader since 2005. Cory is an expert on stock, forex and futures price action trading strategies. To place a buy trailing stop order, the activation price must be lower than the market price.

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