There is no doubt in most investors’ minds that Trailing Stop Losses are excellent strategic tools to combine with your other stock investment techniques. Trailing Stop Losses allow your exit price point to adjust as the value of your stock moves either up or down. For the most part, the two types of trailing stops that you are likely to encounter are: Dynamic and Fixed-Step. Let’s take a look at the differences.
What is a Dynamic Trailing Stop?
The dynamic trailing stop choice is perhaps the most common choice.
It will adjust your price point every time the value of the stock moves one pip (smallest percentage point) in your favor. If you set a dynamic stop at -10 pips and then trading moves in your favor 2 pips, your stop would change to -8 pips. If the trade continues to move in your favor, your stop will likewise move in your favor, in 0.1 pip increments. This movement in your favor reduces your risk because it results in a smaller stop loss. And if the reverse situation were to occur (i.e., the trade does not go in your favor), nothing happens. Absolutely nothing happens if the trade is not in your favor because a trailing stop only moves in one direction – and that is in favor of the investor.
What is a Fixed-Step Stop?
The fixed-step trailing stop works similarly to the dynamic option except that it only moves in “fixed” increments of pips. As opposed to having a trailing stop at every pip, with the fixed-step option, you can set it to trail every 10 pips, 20 pips, etc. The result of this is a trailing stop that works more slowly, waiting until a certain number of pips are collected before moving the amount.
It is like all the other investment management decisions you make – the choice is up to you and what strategy you perceive as the best in your financial situation. StopLossTracker can help show you how it all works. Start your 30-day free trial today.