A trailing stop-loss order is a dynamic stop-loss order that adjusts to the market price, automatically locking in profits as the price moves in your favor and protecting against potential losses when the price moves against you.
Here's how to set a trailing stop-loss:
- Choose a trigger: Decide whether to trigger a market order or a limit order when the trailing stop is hit.
- Review and submit: Double-check your order details and submit the order.
- Choose a platform: Select a brokerage or trading platform that offers trailing stop-loss orders.
- Enter the order: Navigate to the trading ticket and select the "Trailing Stop" order type.
- Set the trailing amount: You'll need to specify the trailing amount, which can be a percentage or a dollar amount.
- Dollar amount: This sets the trailing stop a specific dollar amount below or above the current market price.
- Percentage: This sets the trailing stop a certain percentage below the current market price (for long positions) or above the current market price (for short positions).
- Dollar amount: This sets the trailing stop a specific dollar amount below or above the current market price.
Important Considerations:
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The trailing amount determines how closely the stop-loss follows the price. A smaller amount means the stop-loss will move more frequently, potentially locking in smaller gains but also risking earlier exits. A larger amount provides more room for the price to fluctuate but may result in larger potential losses.
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Consider the volatility of the asset you're trading when setting the trailing amount.
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The trailing stop-loss should align with your risk tolerance and investment goals.
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Be aware that trailing stops can be affected by price gaps, especially during periods of high volatility or market closures.
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While trailing stops automate the process, it's still important to regularly monitor your positions and adjust the trailing amount as needed.
