Trailing stop loss is a great way to increase your trading profits. Not many traders use trailing stop loss to increase their profits.
Today many online brokers have platforms where traders can use trailing stop loss and increase their profits.
Trailing stop loss is also used by experienced Intraday traders.
Stop loss is different that trailing stop loss.
For wealthy traders trailing stop loss is a boon.
What is trailing stop loss?
Trailing Stop Loss is a taking profits off like a ladder.
Some profits on the first ladder, then some off next, then some more on the next and all in the fourth or fifth ladder.
Example of A Trailing Stop Loss to Take Out More Profits
Trader A buys 100 stocks of company XYZ at 500. His target is 550 or above. Stock moves to 545. He sees it and keeps a sell order of 50 stocks (50%) at 550. Stock moves up and reaches 550. 50 of his stocks gets sold at 550. He keeps a stop sell order for the rest of the stocks at 540. Stock moves up to 565. Seeing this the trader moves his stop sell order for the rest from 540 to 560. Stock goes to 570. The trader moves the stop sell to 565. Stock now moves to 578. The trader moves the stop sell to 575. Stock comes back bit down and the stop sell order at 575 gets hit. All stock gets sold.
Here is the calculation: Stock sold at (550 + 575) / 2 = 562.50
So a stock that was supposed to be sold at 550 got sold at 562.50.
The trader made extra money because he followed the trailing stop loss method.
Trailing stop loss is a great method to make more profits from a profitable trade.
Is it possible in futures and options trading?
Yes it is possible. However more skills and experience is required.
Is this possible while taking a loss?
Ideally loss should be fixed and taken immediately. However one can try to take 50% loss at a certain stage then wait for a pullback then take a profit or get out cost to cost in the remaining. But if pullback does not happen then the trader should exit at a certain point all of their holdings.
It is always better to take a loss at a predefined place but keep a trailing stop loss (actually profit) in ladder fashion written above.
Is it Possible To Automate Trailing Stop Loss to Take Out More Profits?
Yes institutional investors and fund houses especially in USA have automated many trading strategies including trailing stop loss orders to decrease loss and increase profits. However the software to automate trades are very costly. A multi million dollar fund house can afford such machines and software, but for retail traders the only way out to get more profits out of trailing stop loss is to do it manually.
Hope you learned a valuable lesson today. More will keep coming.
Happy Trading.
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