What Is a Trailing Stop? Example and How to to Use It
Assume you bought Alphabet Inc. at $1,000.
Using a 10% trailing stop, your broker will execute a sell order if the price drops 10% below your purchase price. This is $900. If the price never moves above $1,000 after you buy, your stop loss will stay at $900. If the price reaches $1,010, your stop loss will move up to $909, which is 10% below $1,010. If the stock moves up to $1250, your broker will execute an order to sell if the price falls to $1,125. If the price starts falling from $1,250 and does not go back up, your trailing stop order stays at $1,125, and if the price drops to that price the broker will enter a sell order on your behalf.
