How to Set a Trailing Stop for Day Trading

A trailing stop can cut your losses before they get too large.

A trailing stop can cut your losses before they get too large.

Day traders normally close out all of their positions by the end of the trading day. A day trader can use trailing stops to limit losses but let gains run throughout the day. You set the stop as a cash amount or percentage. Whenever the price of your securities moves in your favor, the stop price increases, but the limit stays the same if prices go against you. You enter a trailing stop on your broker's buy/sell page.

Purchase stock. Use whatever method you typically follow to buy stock shares, using your broker's buy/sell page to enter the stock symbol, number of shares and any limit on the purchase price you are willing to pay.

Select type of trailing stop. You can set a fixed stop or a percentage stop. The fixed stop triggers a market order to sell your shares if the stock price falls by the fixed amount. The percentage stop triggers if your shares move down the percent you specify.

Enter the stop amount. If you selected a fixed stop, enter a figure of dollars and cents. If you instead chose a percentage trailing stop, enter a percentage representing the maximum amount you're willing to lose.

Press "OK" to send your order.

Confirm your order. Trailing stop orders should take effect immediately. Most brokers provide a confirmation message when an order is received. If you don't receive a confirmation within a few minutes, contact your broker to find out why.

Items you will need

  • Online brokerage account

Tip

  • Day traders can ensure that they exit all positions by the end of the trading day through “market-on-close” orders. For example, if your shares rise or remain near your purchase price, your trailing stop won’t execute. You can place a separate order to sell the shares at the final market price of the day. At the end of the day, the market-on-close order will close your position and cancel the stop order.

Warning

  • Your broker may limit the securities on which it will accept trailing stop orders. For example, your broker might not allow these orders on stocks selling for less than $1 a share. Trailing stops become market orders when triggered, which means that your selling price may be lower than your trailing price.
 

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