Savvy investors will utilize a Trailing Stop Loss Order to reduce financial losses and increase their overall profit margin from stock investments. A Trailing Stop Loss Order is better than a normal Stop Loss Order because your self-defined price point for each stock adjusts with the rise or fall of that stock’s price. A Trailing Stop Loss Order helps investors learn discipline.
Adaptability and Flexibility
If you want to be the most adept money manager you can be, you will take advantage of the adaptability and flexibility that Trailing Stop Loss Orders provide. A regular Stop Loss Order will help manage your financial risk and keep your losses to a minimum, but a Trailing Stop Loss Order goes a step further.
Let’s look at an example: you purchase Stock A at $100.00 per share and you set a regular Stop Loss Order at $90.00 (meaning a sell order will be sent if that stock dips below $90.00 in price). However, Stock A gets on a roll and increases to $200.00 per share. Your Stop Loss Order still says to sell at $90.00. At that point in time, you’re going to lose the money lost between $200.00 and that $90.00 stop price point.
On the other hand, if you buy Stock A at $100.00 per share and utilize a Trailing Stop Loss Order, when the stock climbs to $200.00 per share, your price point for sell off will climb and adjust with it. If you set the stop point at 10%, once the stock rises to $200.00, if it falls to $180.00, your gains realized above the previous price point of $90.00 will be saved and your financial wealth will have grown from that transaction. That’s the whole reason you are in the stock market “game” in the first place – to grow your financial resources.
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