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How a trailing stop can help you

A Trailing stop can be very helpful when you are trading in the stock market. They can allow you to not only let your winners ride longer, but they also make it easy to define your exit.

A Trailing stop can be very helpful when you are trading in the stock market. They can allow you to not only let your winners ride longer, but they also make it easy to define your exit.

When you place a trailing stop order what you are actually doing is opening up an order to follow a stock. For example you buy a $60 stock that you expect is going to make a big move. You buy it at $60 and set a trailing stop 5% below the price of the stock.

As the stock goes up so will the stop because the stop is 5% under the value of the stock. However the stop will never retrace if the stock pulls back.

This allows you to enter a trade which will follow the stock up until the stock starts to go against you. The stop will get you out once the stock pulls back 5% from its high.

If you do not want to get out of a stock with such a small pullback you can always change the stop percentage. If you have a longer term perspective you may want to place the trailing stop at 10% or higher. If you have a shorter time frame you may want to place the stop under 5% , (Just remember the less breathing room you give the stock the more often you will get stopped out).

Using this stop can be so helpful if you do not know when you want to exit a trade. It helps to set in a given game plan. Instead of wondering when to exit a trade you can simply let the stop tell you.

This stop order is not the holy grail of trading it should be accompanied by other research but it can definitely be a helpful tool.

To learn more about other stop orders visit http://www.stocks-simplified.com/stock_orders.html

To learn more about the stock market visit http://www.stocks-simplified.com

About the author

When I was young I wanted to learn how to trade the stock market. So I traveled around the country listening to professional traders talk about how they are making money in the market. After trading for a while I understand how easy it is to make money in the stock market and started a site http://www.stocks-simplified.com to help others learn.

Tags: breathing room, game plan, holy grail, pullback, stock market, stock orders, stocks, term perspective, time frame, trailing stop order