Trailing stop limit optionshouse trading
Trailing stop orders can be a great and effective order type to use as insurance in protecting your stock positions. Not only do they change on the fly as the stock price changes, but they can be used as both buys and sells. This article will explain both ways to use this order. We are exploring trailing stop orders here, but to just note trailing stops and stop orders are the two most advanced stock order types.
Market orders are the simplest and easiest to utilize, and limit orders are arguably the most effective order in the books. The concept behind these orders is very simple. The order uses one of two parameters, price or percentage, to calculate when to trigger an awaiting market order. It is important to understand the difference between Price and Percentage because these are the main factors taken into consideration when applying a trailing stop order.
The main use for a trailing stop on the sell side is to simply protect your profits in a rising market or limit your losses in a down market. To calculate the activation price of the order, we simply take the current stock price and subtract the parameter we chose to use price or percentage.
Trailing stop limit optionshouse trading whole point as you can see is to protect yourself on the downside. Once the activation price hits and the order is triggered, a market order is simply placed automatically and your shares are sold. The main use for a trailing stop limit optionshouse trading stop on the buy side is to only take a position in a stock when the stock price reaches our current activation price. A stock may continue to fall in value, but until it bounces and goes up xx price or percentage, shares will not be automatically purchased for us.
As the stock trailing stop limit optionshouse trading, our activation price falls with it trails the stock price. One last thing to note about trailing stop orders is that the only way they are canceled is in the event of corporate action. This could be for example a dividend payment or a stock split. The only other way they can be canceled is if you cancel them manually yourself. Browse our full Stock Education database trailing stop limit optionshouse trading over stock education articles!
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