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Surviving Bear Markets
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Uncharted Territory
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20 Golden Rules
20 Rules For Trade Execution
20 Rules To Stop Losing Money
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Trailing Stop

 

All trades should have an expectation of a profitable result when entered.  But at times the market moves against an investor unexpectedly producing a loss when the position is sold or closed.  A trailing stop is one tool that is used to protect investors by minimizing loss or locking in profits if the market suddenly moves against a position taken.
top orders are orders that become market orders when the market price of a security reaches or exceeds a given set price.   A trailing Stop order is one that is adjusted by the investor periodically to compensate for changes in price of the security.   A new stop order is issued and the old one cancelled when creating a trailing stop. The premise behind a trailing stop is to limit your losses.   As long as losses are small, an investor is able to live to fight another day so it is better to stop out a losing trade than to risk a larger percentage of capital when the market moves in a way you did not expect.  The other side of this premise is to let your profits run.  A trailing stop, that is incrementally changed to follow the current trading price, allows profits to continue and should be far enough away from the current price level to compensate for intra-day volatility as price moves in a larger trend.
The Parabolic Stop and Reverse (SAR) is designed to provide stop loss levels for both sides of the market.  With each day's trading the Parabolic SAR moves incrementally with price.  When the SAR intersects with price due to a price reversal or loss of momentum the trade is considered to be stopped out.  At that point the other side of the market is taken and the Parabolic SAR starts fresh indicating a possible trailing stop value for the investor.  Using the Parabolic SAR can be very helpful as long as the security is not prone to short term price trend reversals.  If price is erratic, reversing quickly in the short trend, the Parabolic SAR will likely produce poor results.