How to determine a trailing stop %.In 2008 I had no trailing stops on my stocks, I lost a bunch. I now put a trailing stop % on my stocks. I use either 10% or 20%. LGND was recommended, here, it took off. Put a trailing stop on it of 10%. In one day it dipped below the 10% and was sold. Now in three days it is back up to what it was before the decrease. I did buy it back but lost some profit. What philosophy should I take in determining a trailing stop. Thanks.
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I very rarely use trailing stops for stocks I want to hold for a long period of time, since I have little confidence that I will know the right moment to get back in to the stock. That means when I make a mistake about a stock I can certainly hold it for far too long and see greater losses, but all of my best holdings have also seen dips of 25% or more over the years and holding through those has resulted in gains of several hundred percent in many cases.
I know some people believe quite religiously in using stops for everything, but stops tighter than 20-25% can lead to a lot of churning in most portfolios. A stop as tight as 10% will mean you’re trading in and out a lot, which rarely works out well for individual investors unless they’re excellent (and perhaps lucky) short-term traders. There is a service called Smart Stops that actually tracks portfolios and helps you set stop loss targets, but they do charge for that and I don’t know how effective they are.
Personally, I use sell stops most often when there’s a stock that’s rising but that I am inclined to sell for some fundamental reason.
Don’t use SLO on volatile or thinly-traded stocks. Some wiseass will steal them from you.
1) Trailig stops are very useful and recommended for traders who do momentum trades.
2) Buy and watch long term investors should probably not use trailing stops. Instead, if you look at a stocks fundamentals right now and wouldn’t buy it, then probably it’s time to sell and buy some other stock with better prospects.
One way to set a trailing stop is with a moving average (or when two moving averages cross) rather than a fixed percentage.