Trailing Stops

Another option to look at for stop orders involves having trailing stops. This is where you are right behind the market price but with a fixed amount attached to it. This is an interesting move that works well for when you’ve got a stock that is moving up in value and you want to benefit off of possible gains.

Here is a look at how a trailing stop might work:

1. You might have a stock with a market value of $30. You can place a trailing stop of $27 on that stock. You are using a $3 difference between the market value and trailing stop.
2. After a bit, the stock will go up to $35. The trailing stop will move up to $32 and the $3 difference will stay intact as the stock goes up.
3. The stock might dip to $33 but then back up to $34. The $32 trailing stop will still be intact. The trailing stop is not going to decline in value at any time. It can only go up depending on how an investment is moving.
4. The stock would go down to $32 after a bit. At this point, the trailing stop is executed and the trade is complete.

At this point, you will have made a profit of $2 per share. While this might not sound like a lot, it is still a profit. Instead of possibly losing money on a sale at $27, you are getting something from a sale at $32. Planning the stop works for keeping your investment in check. It does well when you are trying to take advantage of a strong upward trend.