Pave the Way to Profits With Trailing Stops

You should seriously consider adding a trailing stop to your trading money management strategy. The reason why not every trader does so is because they don’t really fully comprehend the protective nature of trailing stops. If you want to know how to use this tool to your advantage, you should take a look at how other traders react when they start seeing profits.

When trading stocks, gains don’t always come rolling in smoothly. There are instances when traders have to be content with small profit trickles. This is especially true if assets suddenly take downward shifts in value. The unpredictable downward movements are what make many traders who don’t use trading stop orders nervous. They get so scared that they will lose their trickle of profits that they decide to exit their positions after they see a small upward movement.

Truthfully, there is nothing strictly incorrect about leaving a winning position. The reason why many experts don’t agree about leaving with small gains is that there might be a possibility that a trend will continue to improve. If it does climb even higher, you will lose out on the chance to profit from the rise. It makes better sense to piggy back on the rising trend for as long as you can. The problem is that it is extremely difficult to tell for how long you will be in a good position. A trend can be on its way down with little warning.

It isn’t always possible to tell the top of the trade and prevent trading losses. This is why you need a trailing stop order. If you don’t have the complex tools and resources to help you minutely analyze trend tops from which to exit, you should just use your trail signal to help you determine when to go.

A trailing stop is basically what the term suggests. It trails behind unit price and rises with it. It stops moving however, once the price stops climbing and starts dropping. When the price moves below your stop order, it is a sign for you to take an exit before the value drops even lower.

The importance of trailing stop orders should be obvious. By allowing you to hold your position, you are given the opportunity to enjoy a rising asset for as long as it is on the rise. This kind of stop order will only signal you to leave when you start losing a bit of what you’ve already gained. You never come out a loser because you’ve already made profits that are only nipped a bit at the point of exit.

Trailing stops can be computed in several different ways. Experts often choose among average true range, lowest low, technical and percentage methods. The easiest to use is the percentage method. One disadvantage to using it though is that volatility and price action aren’t given due consideration.

A trailing stop is undeniably important for any trader. It is always worth incorporating in your trading plan even if you think you are already a master at technical analysis. Getting on top of a trend is not always possible so you should take pains at making sure you secure your profits.