Trailing Stop Loss is a type of order that is used in trading to protect profits or limit losses by automatically adjusting the stop loss level as the price of the security moves in a favorable direction. Here are the reasons why you should consider using Trailing Stop Losses when purchasing a stock:
1. Protects profits: A Trailing Stop Loss is designed to follow the price of the stock as it moves up, allowing you to capture gains while protecting your profits. If the stock price falls, the Trailing Stop Loss will trigger a sale, locking in your profits
2. Limits losses: Using a Trailing Stop Loss can limit your losses by automatically selling the stock if the price drops below a certain point. This helps prevent you from holding onto a stock that continues to decline in value, which can result in significant losses.
3. Reduces emotions: Trailing Stop Losses can help you remove emotions from the trading process by automating the decision to sell a stock. This helps you avoid making impulsive decisions based on fear, greed, or other emotions that can lead to costly mistakes.
4. Maximizes gains: Trailing Stop Losses allow you to stay invested in a stock as long as it is trending upwards, giving you the potential to maximize your gains. By adjusting the stop loss level as the stock price rises, you can capture more of the upside while protecting your profits.
Overall, using Trailing Stop Losses can help you manage risk, protect your profits, and make more informed trading decisions. However, it’s important to remember that no trading strategy is foolproof, and you should always do your research and consult with a financial professional before making any investment decisions.