trailing stop

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Trailing Stop

An order to sell a security when the price drops below a certain percentage of a given price. If the price rises, the trailing stop remains the same percentage below the new price. However, if the price drops, the trailing stop remains the same.

For example, suppose an investor buys a security at $10 per share and sets a trailing stop at 20% below the price. If the price drops to $8, the security is automatically sold. If the price rises to $20, the trailing stop moves to $16. However, if the security is bought at $10 and the price drops to $9.50, the trailing stop remains at $8. Likewise, if the price rises to $20 and then drops to $18, the new trailing stop remains $16. See also: Advisory account.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

trailing stop

A stop order to sell (or to buy) a security in which subsequent stop orders are placed at progressively higher (or lower) levels as the stock price increases (or decreases). For example, an investor may purchase shares of Union Pacific Corporation at $60 and simultaneously place a stop order to sell the stock if it drops to $58 or below. If the stock rises to $63 without going through the $58 stop price, the investor raises the stop price to $61. Thus, the stop price trails the market price of the stock.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
For more on how to protect a client's portfolio, and Benjamin Graham, please see these previous Mike Patton posts: The Value of Using Trailing Stop Orders: A How-To Using ETF Trailing Stop Orders in Portfolios: Watch the Price!
Wells Financial Holdings Limited newly enhanced online trading platforms also include: updated options chains with timely streaming data; Good Til Cancelled (GTC) Trailing Stop Orders on mostly open equities positions to shield earnings and limit losses by instantly modifying a client's exit price as the value of the security increases; Symbol Entry Field Drop-Down Menus designed for quicker and easier access to the latest securities viewed and traded; more improved and better capabilities for traders to print breaking news and important data that could impact their individual trading strategies and trading style; and support system from Microsoft Vista Operating System.
Over the past few years, I've been buying stock ETFs on dips and backstopping them with trailing stop orders. That's worked well, but is it enough?