Today I'd like everyone to welcome David Waring from InformedTrades.com to come and teach us a bit about the all important trailing stop loss method! It's always a top question among members and David makes it clear the best methods to use. Enjoy and feel free to comment!
In all my years one of the most frequent topic I discuss is the psychological difficulties people have with letting their profits run, and how the concept of the trailing stop is one way traders can overcome these difficulties that are the downfall of so many traders.
Once a position has begun to move in a traders favor many successful trader’s will manage that position through the use of what is known as a trailing stop. The simplest type of trailing stop is what is known as a fixed trailing stop which simply moves along behind a position as that position begins to move in the traders favor. The beauty of the fixed trailing stop, is that while it will move up behind a long position or down behind a short position as the position moves in the traders favor, if at any time the position begins to move against the trader, the stop does not move, essentially locking in a large portion of the gains the trader has made up to that point.