trailing stop


Also found in: Acronyms.

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.

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.
References in periodicals archive ?
A trailing stop could provide the investor greater flexibility to profit, or limit a loss.
Instead of putting a $24.50 Stop Order, you can instantly put a 50 cent Trailing Stop. If however the stock falls by 50 cents and order to sell is automatically sent.
But, if the price starts moving out, under normal rules it would match you at 2.6, but the trailing stop will move the criteria.
Previous studies such as Davidsson (2010) has shown that a trailing stop loss represent a natural tool for a trend following investor because as long as the trend is intact the trailing stop loss is not triggered.
Trailing stop loss orders and bracket orders are designed to help clients minimise possible losses and maximise possible gains.
He believes the cornerstone of Sierra's risk management practice is the "trailing stop" discipline that the firm applies to each underlying fund within the fund-of-funds Core Fund portfolio, one that is based upon Wright and Sleeper's in-depth study of economic cycles, the behavior of individual asset classes in different market conditions and the historic volatility of each asset class.
Moreover, to protect the downside, I added a trailing stop.
If your trend takes a sudden counter-move and your trailing stop activates at a loss, it's natural to ask yourself: how can you be sure the next trend will be more friendly?
Over the past few years, I've been buying stock ETFs on dips and backstopping them with trailing stop orders.
In April 2013, my custodian, TradePMR, introduced trailing stop orders (TSO) to its advisors.
Check out Working With Trailing Stop Orders to Protect a Portfolio on ThinkAdvisor.
James McFarland, the Managing Director of Bridgestone Global Partners, cited an example: “For instance, you buy a stock at $25 and want your risk to limit at a 50 cent loss, instead of putting a stop order at $24.50, you can put a trailing stop of 50 cents.