Trailing Stop A trailing stop is one in which the

Trailing Stop

A trailing stop is one in which the stop level is recalculated each night. If the price of the investment moves in the desired direction, the stop level is typically modified in the same direction, thus reducing any losses that would result in an adverse price movement. If the price moves in an adverse direction the level of the stop is not changed. The following example shows how a trailing stop is calculated. Suppose that an investor buys a stock at $10.00, expecting the price to go up. At the time when he enters this position, he may choose to set a trailing stop at $9.00. If, on the next day, the price rises to 10.50, the stop would be increased to $9.50. If the price drops to $9.25 the following day, the stop would be triggered, and the investor would then sell the stock, thus limiting the loss on the trades to $0.75.