A trailing stop order is a a kind of order that helps you limit the potential for loss due to drastic stock price fluctuations. This also helps investors get away from random emotion-based strategies. Research has shown that more disciplined trading is much less fraught with severe losses. One reason why using trailing stop is beneficial is that it does not permit your profits plunge below your set bottom-line. If you have chosen to invest in gold – one of the most reliable assets – you can rely on stop orders just as well.

Still wondering how it works? Very simple. For example, you are about to place an order to buy stock at $20 per share and you have set your trailing stop order at $2. Should stock price soar to $25, the stop order will follow it and will amount to $23. In a case whereby stock price drops to the stop level, the shares will be sold at the best available price. Once the stop point has reached a higher level following price growth, there is no turning back for it. Therefore, this is one of the most investor-oriented trading strategies. Should stock price drop below the stop order, you can withdraw immediately. An opportunity to avoid severe losses is the biggest advantage of the practice. You can limit your losses, but there is a much greater potential for gains.

Today, with world stock markets showing high volatility levels, many traders resort to investing in gold. However, stop orders have proven effective in saving incomes, so investing in shares does not involve serious risks either, which is very important in times of economic instability.

Another benefit is that it is a kind of cure against greed and fear, which often play against investors. No doubt, sketching your own plan means a lot in terms of creative thinking so crucial for successful trading; at the same time, not everyone has self-control. Many investors tend to get too excited to even stick to their own plans and begin to move frantically from one strategy to another. Trailing stop saves you the hard time and anxiety and guarantees stability. However, you’d better take your time and find a reliable stock and set the point at the right moment.

There are two most common ways of setting stop points. First, you can wait for the breakout of a prolonged consolidation (about a month or so) and put your stop points below the lower end of this consolidation. This method is used when there is a possibility of overvaluation; should the stock jump, investors will enjoy substantial income. The stop order is regulated continually along with  stock price (or maybe gold price!) momentum; therefore, this technique is referred to as momentum-based or stop loss order technique.

The so called parabolic (stop and reverse) method is less likely to inflict the euphoria of a rapid increase in income. However, it is more preferred by discipline-oriented investors. What’s good about this method is an opportunity to immediately take up the opposite side of the market and go short, should the market momentum take the reverse direction.