Everything You Need to Know About Trailing Stop Losses
Online brokers are always looking for new ways to keep investor losses to a minimum. One of the most popular downside protection techniques is a stop-loss order, which automatically sells a position at the current market price if the price drops to a specified level, preventing further losses. Before we get into the basics of trailing stop loss, it’s important to know that it takes a certain level of experience before you can become profitable. However, if you would like to get started, you need access to the best trading platform from one of the best online share brokers in the country. At Zebu, we give you all of this and more - we also offer the lowest brokerage for intraday trading. Trailing stop-loss order Traders can improve the effectiveness of a stop-loss order by combining it with a trailing stop, which is a trade order in which the stop-loss price is set at a percentage or rupee amount below the market price. When the price goes up, the trailing stop goes up with it. The new stop-loss price remains at the level it was dragged to when the price finally stops climbing, automatically safeguarding an investor's downside while locking in profits when the price achieves new highs. Trailing stops can be used with regular stop-loss orders on stock, options, and futures exchanges. The Functions of a Trailing Stop Consider the following scenario for a better understanding of how trailing stops work: Buy price: Rs 100 Price at the time of setting a trailing SL: Rs 100.5 Trailing amount: Rs 1 Immediate SL: 99.5 If the market goes up to 101, the trailing SL will be moved up to 100. If the price goes back to 100, your SL order will be triggered and you will exit with a slight loss (considering slippage, taxes, and fees). It's critical to avoid the need to reset your trailing stop during market dips, or your effective stop-loss will be lower than intended. When you notice momentum peaking in the charts, especially when the stock is hitting a new high, it's also a good idea to rein in a trailing stop-loss. It's critical to assess your maximum risk tolerance when using classic stop-losses with trailing stops. Set a stop-loss at 2% below the current stock price and a trailing stop at 2.5 percent below the current stock price, for example. As the price of the stock rises, the trailing stop will outperform the fixed stop, making it redundant. To make this approach work on current trades, you'll need to select a trailing stop value that takes into account the stock's regular price movements while catching just the genuine price decline. This can be accomplished by analysing a stock for several days before engaging in active trading. Furthermore, when using a trailing stop, there is the risk of setting it too tight during the early phases of the stock's support. The consequence will be the same in this situation, with the stop being triggered by a temporary price downturn, leaving traders concerned about a perceived loss. This might be a difficult mental pill to take. You need the lowest brokerage for intraday trading as well as the best trading platform. As a leading online share broker, we at Zebu have created the perfect trading platform with an extensive amount of features to simplify trading for you.