Stops and Trailing Stops Explained (Stops, Stop Limit, Trailing Stop, Trailing Stop Limit)

In the video today we’ll be going through the different stops available to you as a trader and decide which is best for you. Now breaking it down, there are four different types of stops available to you. These are stop markets, stop limits, trailing stops, and trailing stop limits. Stop Market A stop market order, often called a stop or stop loss, is meant to protect a trader from a significant loss if the underlying stock moves too far in the wrong direction. This means we are setting a trigger price at which a market order would be sent out to either buy or sell the stock. The market order will not be sent until the stock hits our activation price. Stop Limit Stop-limit Orders are nearly identical to stop-market orders. However, Stop-Limit orders utilize limit orders rather than market orders once a stop is triggered. This will mean using two different price – the stop price and the limit price. Just like in the previous example, you will set a trigger at which you want to close out of your position. However, with a stop-limit, you will also set a lower end threshold at which you’re comfortable filling. Trailing Stop A trailing stop order is an order that is entered with a stop parameter that creates a moving or "trailing" activation price. As a stock's price moves, the activation price for your order will move too – allowing potentially profitable trades to run, and may help protect against a sharp pullback. The stop parameter can be entered as a dollar value or percentage below the current bid. Trailing Stop Limit Almost identical to trailing stops, but instead of triggering a market order when the stock falls to the activation price, a limit order instead goes out. If you think back to our stop loss vs stop limit example, it’s the same principle. With a trailing stop limit you are setting a lower end threshold at which you would be willing to sell the stock. The important point to keep in mind is that your limit price does not move up like the stop.