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Trailing Stop Sell Order and Trailing Limit Sell Order as Trading Techniques to Optimize Profits
Posted: May 12, 2020
When trading there are different types of techniques one can employ to optimize profits and reduce losses. The most common techniques are the trailing limit sell order and the trailing stop sell order. These techniques allow one to set specific conditions under which there will be an automatic trigger of the order for selling. Applying these techniques means that the trader doesn't have to be hand on to sell their position and they are cushioned against any unexpected downswings.
Trailing stop sell order
A trailing stop sell order is one that sets a fixed stop price just below the current market price and there is always a trailing amount attached. The trailing amount is set to rise with market price movements and it constantly recalibrates order's stop trigger price usually at a set amount below the current market price depending on the trader's set trailing amount. On the other hand, if the price drops there is a stop-loss price which is constant that the order cannot fall past, and once it hits the stop price the order is submitted.
When using this technique the instead of a stop prices the trader defines a specific percentage below or above the market to limit losses if price falls. If the price of the trade moves in a favorable direction then the set trailing amount will adjust relative to the market price by the defined amount. Alternatively if the price of the trade heads in the negative position then the trailing amount will stay fixed and once the price hits the trailing stop price then the order is triggered.
Most importantly when deciding to use the trailing stop sell order it is vital to be keen when deciding the trailing price because near term market movements in price can easily activate the trailing stop sell.
Trailing limit sell order
On the other hand, a railing limit sell order is usually priced at a considerable price from the current market price and it differs from the trailing stop sell orders that are submitted once the stop price is triggered. The difference with the trailing limit sell order is that the trade is re-priced relative to the current market.
The trailing price is set at better levels compared to the market price. this means that a trailing limit sell order will set the trailing price above the current market prices. The order will therefore only move lower once the market price drops to the lowest level of the recent market price. On the downside, the order will not adjust relative to the market if there is an upward movement in price.
The trigger for the order comes when the price drops a given percentage from the recent high price high. If for instance a stock has been on an upward trend and the percentage of trailing amount is 10%, if the stock hits highs of $100 then the trigger will come if the price falls approaching $90. Alternatively one can use the trailing limit price that is specified in advance before setting the trade.
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