Trailing Stop Loss Orders Explained // How to use trailing stops with David Moadel
hello friends and welcome to looking at
the markets with David Modell today I'm
going to talk about trailing stop loss
orders this is more of an intermediate
video with stop-loss orders so I'm not
going to talk about what a stop-loss
order is but I have other videos on that
if you want to check those out you're
welcome to enjoy my more basic
introductory videos on stop-loss orders
but this is trailing stop loss orders
okay so with a normal stop-loss order
you set your sell price somewhere below
where you bought the stock it might be a
percentage below where you bought it or
it might be a dollar amount below where
you bought it now if you're shorting
stocks then everything is the opposite
you would set your stop-loss above where
you shorted it okay so but with regular
stop-loss orders this is a pretty good
way to limit your risk but it doesn't
protect your gains if the stock goes up
a lot and let me show you what I mean I
drew this chart here as best as I could
okay so in this example you could have
sold for a profit but instead you got
stopped out for a loss so this is one of
the more frustrating aspects of normal
stop losses right so let's say you
bought the stock at this price and you
put your stop-loss here okay and the
stock goes sideways and then it goes up
and up and up and then you know what
happens a lot of the time right it
starts to go down and down and down and
then you get stopped out and it's below
where you bought it so you get stopped
out for a loss when if you had just sold
it somewhere up here you could have had
a profit alright so that's a regular
stop-loss and it could be very
frustrating because of that
it doesn't protect your gains really it
just prevents losses or extreme losses
so as you can see regular stop-loss
orders are static meaning they don't
move or adapt if the stock price goes up
a lot that's why a lot of traders prefer
trailing stop loss orders which trail or
move up with the stock price when the
stock price goes up so for example if
the stock goes up a dollar the trailing
stop loss gets dragged up a dollar as
well it moves up with it when the stock
moves up so here's our example again
okay so you bought it here you bought
the stock here and you put your initial
or first stop-loss here but you you told
your broker you wanted it to be a
trailing stop loss all right and so it's
going to if if the stock moves up the
this dotted line will move up along with
it ok so the stock goes up and up and up
to here and the died line goes up and up
with it it still stays below the current
price as long as the stock is going up
but it kind of you can think of it this
way the as long as the stock goes up it
drags the stop-loss the trailing stop
loss up with it all right now when the
stock stops going up and starts to go
sideways and then down the the dotted
line the trailing stop loss it doesn't
go down with it it just stays there and
so you get stopped out here for a profit
ok because it's higher than where you
bought it that's a lot better than
before when you got stopped out down
here for a loss
as long as the stock stock keeps moving
up the trailing stop lost moves up your
profits can get bigger and bigger this
way
now if the stock goes sideways or down
the trailing stop loss doesn't go down
it just doesn't move alright so this
whole time you bought it here you set
your trailing stop loss here right and
so it's going sideways stop-loss doesn't
move goes down stop-loss still doesn't
move so a trailing stop loss never goes
down it only moves up when the stock
goes up alright and so if this happened
then the stop-loss would have just
stayed there and you would have gotten
stopped out there that's the worst that
can happen
although stop losses are not perfect
okay for example if there's an overnight
really big gap down you can you know and
you you play say you know a market order
when you get stopped out then you could
get filled below that line so be aware
of that it has the same problems as stop
losses generally do which is that you're
not necessarily going to get your order
filled exactly where you placed your
stop-loss all right so these are not
perfect mechanisms for hedging risk but
so the trailing stop loss never goes
below where you first set it in the
beginning all right if you say your stop
your trailing stop loss here initially
it'll it'll never go below that and
sometimes it will go up a lot before you
finally get stopped out your trailing
stop loss won't get triggered until the
stock starts to go down and then hits
that stop-loss price
so again it can go up quite a bit if
this stock just kept going up then that
dotted line would just keep going up and
up and it wouldn't stay put until the
stock started to go down all right but
it can go up quite a bit before it
starts to go down and you get stopped
out finally all right
so in my opinion this is a good way to
limit your risk but also protect some of
your profits and just like with a normal
stop-loss you can set a trailing stop
loss either a certain percentage amount
below the current stock price or a
certain dollar amount below the current
stock price and if you're using for X it
could be pips whatever it is either way
the trailing stop loss will get dragged
up whenever the stock price moves up and
if you're already using regular stop
losses you might consider trying a
trailing stop loss and see if you like
it better it works a little bit
different with each broker so you can
check with your broker for details on
how to enter a trailing stop loss order
alright so that's the basics on trailing
stops hope you enjoyed this video and
you might want to try it it's up to you
alright so my name is David Modell and I
hope you like this video if you learned
something then please give this video a
thumbs up on YouTube and leave comments
and please subscribe to my youtube
channel if you haven't done that already
if you already did
awesome thank you so much if you haven't
then by all means hit that subscribe
button and hit the bell on YouTube to
get those notifications so you'll know
whenever I put out a new video and if
you want some more help with indicators
or putting together a trading or
investing plan because you really need
to have one then you can email me
anytime my email address is David Modell
at gmail.com thank you so much I really
appreciate it and I'll talk to you again
soon