# Trailing Stop & Stop Loss Strategies

## Trailing Stops

Successful trading requires careful thought and planning along each step of the way. You have to know what your overall goals are, which stocks are right for you to buy, and how much of each stock to buy.

But for too many investors, the planning process ends there, leaving them with one very important question unanswered: when to sell. Without an exit strategy in place, selling decisions are far too often left to guesses, hunches, or emotions, all of which more often than not will lead to selling at the wrong time.

How many times have you sold a stock too early, leaving potential gains on the table? How many times have you held on to a loser with the hopes that it would bounce back, only to watch it continue to plummet? Trailing stops are a simple – but incredibly powerful – tool that takes the guesswork out of when to sell, giving you a solid plan to make the most profit out of every trade. Are you ready to learn more?

## What is a Trailing Stop?

A trailing stop is a mathematical formula that allows you to set a percentage below the stock’s highest trading price at which you will sell to lock in your gains. Simply put: a trailing stop mathematically calculates when to sell to maximize profits or minimize losses – every time.

## How does this work?

Let’s say Joe Trader buys a stock for \$100. If he set a trailing stop of 20%, he would sell the stock if it ever closed below \$80. Why?

\$100 stock value – \$20 trailing stop value = \$80 sale price

The lowest he could possibly sell his stock for is \$80, with the trailing stop protecting him from a bigger, devastating loss. However, if the stock price increased to a high \$150 per share, the trailing stop would also move up – and he would sell if the price ever dipped below \$120 because:

\$150 stock value – \$30 trailing stop value = \$120 sale price

This prevents you from the all-too-common problem of holding onto a stock as the price spikes and then quickly returns back to where it was. With a trailing stop, you’ll know to sell as soon as the stock reverses direction.

## The advantages of trailing stops

• Trailing stops are flexible. You can set any percentage you’d like, and change it as you see fit.
• Trailing stops take the emotion out of trading. Instead, you have a methodical manner in which to determine your goals ahead of time.
• There’s no cap on profits. As long as the stock continues to risk and doesn’t dip down below your specified percent, you continue to earn.
• If a lucrative investment suddenly takes a nosedive, a trailing stop keeps you from holding on too long – locking in maximum profit.