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How do I "trail" a stock?

Trailing a stock price is a method used by many traders to maximize profits while the market moves in favor of the open position. Before reading any further, please review our FAQ item on: What is a Stop-Buy or a Stop-Loss order?

Trailing a stock price is a "moving" stop-loss or a stop-buy order. For example, if you bought stock at $10 today, you might want to put an initial stop-loss order at $9.0 which represents a 10% gap between your entry and the stop point.

Everyday, depending on the price action, you will either increase or maintain your stop-loss price. For example, if on the first day stock closes at $10.9, you may want to move up your stop to $9.8 and so on. As the price reaches higher levels, say $15, your stop-loss order should be trailing it with about 5-10% gap, say at $14.0.

There are methods that will give you a stop-loss point everyday depending on the price action. Once you become a subscriber, we would guide you on where your next day's stop-loss point should be.

Similarly, if you're short (see glossary for a definition of short-selling), then, instead of a stop-loss order, you'll trail the price with a stop-buy order. Please refer to What is a Stop-Buy or a Stop-Loss order? for a definition of a stop-buy order.

Trailing a stock price removes the guess work from exiting profitable positions. Many (inexperienced) traders often end up selling stock too early and miss major moves. By trailing the stock price, you get to ride the move as long as the main trend continues. For a graphical example of trailing a stock price (both from the short and the long side) please visit our trading tips page.





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