If you are an investor, you have probably heard of trailing stop loss orders, and maybe you have even used them at one time or another. Whether you are an experienced trader, a beginner, or even just looking into the trade market, you will want to consider everything before you make any future decisions about using a trailing stop loss order.
Most often people look at the positives about stop loss orders, such as getting out before too great a loss happens. Here are some things you may not have considered and should know about the risk of trailing stop loss orders:
- Short term fluctuations: Short term fluctuations can happen and fall below what your trailing stop loss order limit is. This is not good because when a short term fluctuation happens, and then goes back up, you end up losing money. One thing to do to prevent this, would be to watch the market for the particular stock, before placing your order, to see what the average rate of rising a lowering is in a week. Then, set your limit around that.
- Just because you have a stop loss order, doesn’t guarantee a minimum loss: Once your limit is reached with a stop loss order, the order turns into a market order- which will cause a stop- but possibly will result in a different price to sell at. This usually happens when the market is a fast paced one in which prices can change very quickly.
- Investment always involves risk: Whether you use the stop loss or trailing stop loss order, you are taking a risk simply by investing. Of course, you want to make a profit- but there is never a guarantee. However, you are more likely to lose less and make more if you do use trailing stop loss orders.