written by reader Trailing Stop Losses

By Anonymous Questions, February 28, 2020

I’ve really enjoyed your Premium service. I’ve cancelled all my other advisory services. While I can’t say I’ve gotten rich following your recommendations, I an CERTAIN I’ve saved a lot of money by not buying.

You’ve mentioned Trailing Stop Losses, advising that you use alerts rather than orders. I think this question would apply to either one.
Fidelity now only allows ”until cancelled” to last for 6 months and I am trying to find a way to protect maximum gains.
I don’t know if I misunderstand the system or if I’m just too stupid to understand the several explanations that I’ve gotten from Fidelity.
Example – I buy a stock at $40 with a 25% TSL. It goes to $60. If it drops to $45 it sells IF that happens within 6 months. But if it drops to $50 at the end of 6 months, I have to place a new TSL order and my TSL resets at $37.50.
Do you know of a service that would keep my TSL at $45?
Thank you.

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imvestor
imvestor
6 months ago

AQ: You might want to look into TradeStops at TradeSmith.com. I don’t know if you can connect their service (which sends you an alert) with Fidelity (or any other brokerage house), but if I understand their system, your percentage stop will last as long as you keep your subscription current (paid for). You would have to act on the alert by contacting your broker, so might wind up selling at a higher or lower price in a fast-mov ing market, but the percentage would never “expire”, necessitating a “reset” and the ALERT would be sent (to you, but maybe you can get them to notify the broker as well) whenever a stock in your portfolio stock reaches a price 25% (or your selected percentage) lower than the most recent previous high. Disclaimer: My only connection to/with TradeSmith is that I am a relatively new subscriber , but have not yet set up a stop alert request, so cannot even assure you that it works the way I have described. IMVestor

Travis Johnson, Stock Gumshoe

I like TradeStops as well, though it’s too expensive for those who don’t have a large account and there are also plenty of free “alert” services for stop loss notifications.

I hadn’t thought about the trailing stop price “expiring” if you have a stop loss order with an expiration date, but I can see how that would happen. I don’t enter trailing stop orders into my brokerage account, because I don’t want to automatically follow every alert and particularly don’t want shares sold in a “flash crash” downdraft that resettles itself within a few hours or days — I use trailing stop orders as a reason to reassess my stocks, sometimes I look them over and decide to sell some or all of my position, and sometimes I let the shares ride, so I consider stop losses to be a management tool, not an automatic risk reduction system that acts without me.

If you do want the order set with your broker, I’d suggest just resetting it at expiration to a trailing stop loss order at the dollar amount that matches where the previous stop loss order was (instead of a new percentage stop loss), then if the shares return to new highs again you can go in and change that to a trailing % stop if that’s what you want to maintain.

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