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.
Alternatively, if you have $30 stocks, your Trailing Stop will automatically retune to $29.
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.
Over the years, the trailing stop strategy has been extremely successful, both for Sierra's separate accounts as well as for the Core Fund, which year-to-date, is up more then 3% and has been, since its inception, the top performer out of around 325 funds in its Morningstar peer category.
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
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.
As far as staying in a trade to capture more profit, a trailing stop can be used or, if trading multiple lots, a portion of the trade can be closed out at a predetermined level of profit and then move the stop to breakeven on the remainder of the position.
It then went on to place a Trailing Stop order at 1.