Trailing Stop Loss (or TSL) in an order that allows traders to set a percent or amount (nominal value) of which under it, the position will be closed. That means that when prices increase, the stop loss does as well — “trailing” it. That way, as an investor, you can take advantage of the potential upsides of your investments while protecting yourself from the possible downsides.
In the below video you will see how to automate your Trailing Stop Loss with Capitalise.ai. Locking profits have never been easier!
According to Investopedia.com, the 8th rule of successful trading is “Always Use A Stop Loss”, and not just. One can buy a stock that will lose value, and while waiting for it to recover, may see it only continue to drop, like quicksand. sounds familiar?
By setting a “Stop Loss”, you set the price/percent from the buying price, which under it, you are no longer willing to risk and continue losing money, by closing the position.
“Stop-Loss” is a basic order, offered by all brokers. But what if the stock you bought had a green phase, and you want to take the profits just when it starts to drop?
Well, “Trailing Stop Loss” (aka TSL) allows you to do just that, rather than cutting the loss from (only) the buying price. TSL will close the position, while the set loss is derived from the highest point of the P/L (and not the entry price). This allows you to lock and maximize profits as well as avoid downtrends.
For example:
You bought AAPL stock for 100. Since you are a clever trader, and also LOVE profits, you want to set a trailing stop loss condition, for example of 2%.
In our scenario, AAPL moved up to 110 and afterward started to downtrend. When AAPL will reach 108 (2% from the P/L which was 10%), the TSL order will close the position, securing the profit gained while the stock went up.
If you use a “Stop Loss” of 2%, rather than “Trailing Stop Loss”, the positions would close at AAPL price of 98 – 2% from the buying price, resulting in an actual loss of 10$ or 10.9% with comparison to TSL.
Learn more about using Trailing Stop Loss with Capitalise.ai >>
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