| The best way to maximize your profits is to be | | | | Stock market, and exit the position at the point |
| prepared to give some back to the Stock Market. | | | | where you can realistically maximize your profits. |
| When most traders first hear this, they are a little | | | | A simple example can illustrate the importance of a |
| taken back. Why would you give any of your profits | | | | trailing stop loss. If you received a buy signal and |
| back to the Stock market; because you are never | | | | purchased XYZ, and set your initial stop loss, you`d |
| going to be able to exit right at the peak of the | | | | be sure to keep your losses small. But, your initial |
| Stock market trend. But, you can still stay with the | | | | stop does not move. What happens if, after |
| trend as it develops, and let your profits run in the | | | | purchasing XYZ, the asset runs up a few hundred |
| Stock market. Then, when the price turns, you can | | | | percent? |
| exit. | | | | Unless you have a way to lock in the profit, you |
| Traditionally, an inexperienced trader will exit a | | | | could keep that position until the share reverts all the |
| position once they see a little bit of a profit in their | | | | way back down to your stop loss, where you would |
| trading account. They want to crystallize that profit | | | | exit the trade. You would end up losing money even |
| immediately. People don`t like to lose, and they | | | | though there`s potential for some fantastic gains. |
| believe that those profits, made in the Stock Market, | | | | Obviously, you need to have a way to keep a |
| are their profits, and once they have them, they | | | | situation like this from ever happening, and that`s |
| don`t want to risk giving them back to the Stock | | | | exactly what a trailing stop does. This form of stop |
| market. | | | | is adjusted on a periodic basis according to a |
| Is the Stock market strategy written about in this | | | | mathematical formula that keeps it moving upward |
| article doomed to failure, since it breaks one of the | | | | as the price moves upward. |
| cardinal rules of trading; to let your profits run? It is | | | | After the first day of trading, if the price moves in |
| always wise to implement cardinal rules like this, but | | | | your favour, or even if the shares volatility shrinks, |
| how do you implement this in the Stock market? | | | | then the trailing stop is moved in your favour. If the |
| Well, after you`ve defined your trading float, set | | | | Stock Market then moved against you enough for |
| your maximum loss, calculated your stop losses, and | | | | your stop to be triggered, you would still take a loss, |
| also calculated your position sizing - you can | | | | but it would not be as large as your initial stop loss. |
| determine how to handle profits. | | | | The key to the trailing stop loss in the Stock market |
| Once you`ve set your initial stop loss, you`ve ensured | | | | is that you need to adjust the asset continually to |
| a mechanism to cut your losses short. Now you need | | | | make sure that the stop is moved in your favour. A |
| to introduce a rule that allows your profits to run. By | | | | trailing stop loss is calculated in a way that is very |
| simply setting these two rules, you can control two | | | | similar to the way we calculated our initial stop loss. |
| important variables - whether or not you make a | | | | The only difference being rather than calculating our |
| profit, and how much profit you`re going to make. | | | | trailing stop loss from the entry price, we`re |
| Of the two types of exits you use in the Stock | | | | calculating our stop loss from the highest price since |
| market, hopefully it`s the ones we`re about to | | | | entry. |
| discuss now that you`ll get to implement more often, | | | | With a trailing stop loss in place, you will be able to let |
| as these are the ones that are implemented once | | | | your profits run, and let your trading system deliver |
| you`re in a profitable situation. Trailing stop losses will | | | | the maximum profit in the Stock Market. |
| allow you to follow a trend as it develops in the | | | | |