Benefits Of Trailing Stops
Trailing stops are very powerful tools in the stock market. They are stops that move up when the stock moves up, but do not pullback when the stock pulls back. This way they basically take every gain they can but do not let large losses pile up.
There are a ton of advantages to using trailing stops.
1. Limited Loss Potential
No matter how good of a trader you are you will eventually have losses. You will need a way to limit them so that they do not affect your overall return that much.
If you decided to place a 10% stop for instance you would be risking only 10% of the investment that you just made. If the stock suddenly pulled back 50% you would get out near the top and could wait for it to turn around before getting back in.
2. Doesn't Limit Gains
Another great thing about trailing stops is that it does not limit gains. If you bought stock XYZ and used the same 10% trailing stop on it that stop would have no affect on the potential increase of the stock. The stock could double or triple and you would not have to sell it. Only when the stock pulls back 10% would the stop activate and you would exit the position.
3. It Takes the Emotions Out of Trading
Emotions have a big impact on our trading. We want to hold onto a stock when it is going up and we want to keep holding on and convince ourselves everything will be ok when it is crashing.
Creating your own game plan is important. But it is also important to stick to your plan and not change it every 5 minutes. That is why trailing stops are so powerful because you just set it up and never have to make another decision about the trade again.
The trailing stop will follow the stock up and the trailing stop will eventually get you out of the position (hopefully for a profit). The only thing you need to do is to figure out how far behind you want to trail the stock and then walk away.
This way you can have a computer follow your "game plan" because they will likely do it better then you.
Article Source: FxTradingStock.com
About the Author
To find more about the how to use trailing stops or to get other trading tips visit Shaun's site which offers stock tips
by: Shaun Rosenberg
Total views: 49
Word Count: 394
Date: Thu, 10 Jun 2010
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