Getting the most out of your investments, gaining more and losing less, may depend in large part on how you handle your stops. Using both a trailing stop loss and a stop loss order may end up being one thing which will get you the best results.
Stop Loss Orders
Stop Loss orders are used to limit the amount of loss you are willing to take. You set up the amount with your broker, and place your order. That will prevent you from losing more than the amount you set, and in turn cause your broker to close you out at that price.
Trailing Stop Loss
The trailing stop loss order also protects your investment, but offers the advantage of being a bit more flexible. It can still be used to reduce the capital while following the parameters you have set up, say between 10 and 20 percentage points for example, and kick in to protect your profit by lowering the amount of capital which is still invested.
While there are no guarantees when you invest, and there is always a risk involved,combining the stop loss order and the trailing stop loss has shown to offer great results for many investors. The reason it is so good to use them both together is that rather than simply stopping, like a stop loss does, the trailing stop loss will pick back up as the price of the stock increases again, but will limit how much is invested according to your limits, protecting your capital. The trailing stop will also adjust itself,which is a great help. It requires less watching and involvement from you because you have already placed your orders to be followed.
If you want to know better how they both can work together, consider using a virtual investment tool or a demo. That way you will be able to see for yourself how it can work to your advantage.