Manward Trading Academy

Video: How to Set a Trailing Stop in Any Online Brokerage


Alex: Hi, I’m Alex Moschina, I’m the Associate Publisher of Manward Press and I’m here today with Andy. Today we’re going to be talking about trailing stops, a pretty important topic at Manward and something that should be part of your trading arsenal.

Andy: Yeah, so I talk a lot about trailing stops. You’ll see in almost all of the alerts that I’ll send you that I always recommend we buy a stock to set a trailing stop right from the beginning. Most of the time it’s 25%, sometimes it’ll be more or less, but it’s very important that you understand how to actually implement that trailing stop. A lot of people have questions on that, so that’s why we filmed this video. And we’ll actually go into our computers, share our screens with you and show you exactly what you need to do in three of the most popular brokerage platforms on how to set a trailing stop. It should be everything you need to use this very important trading tool.

Alex: All right, so let’s get started. So we can log into one of my accounts first. Let’s go ahead and check out E-Trade. So it’s a pretty popular brokerage. Most people are familiar with them. If you look at my screen, as you can see, here’s my portfolio. Why we’re going into my existing portfolio is because you can’t put a trailing stop on a stock that you don’t already own, which should make sense. So let’s say that I’m concerned or want to set a stop on Apple, which my position there is doing quite well. So what I’m going to do is I’m going to go as if I’m doing a sale, let me go ahead and click into that position and it takes me to this screen here where I’m going to do my order.

All right, so for this I’m going to go down to price type. Because I’m doing a sale and I’ve specified I’m doing a sale, going into price type is going to break down my options for whether I want to sell right now. So sell at market, sell at market at the end of the day, sell market on close, set a limit, etc. But what we’re doing is a trailing stop. So there’s two types of trailing stops you can do. You could do trailing stop percentage or a trailing stop dollar amount. Dollar amount is if I have a specific figure at which I want to sell my stock. So if it drops down to a certain price, I want to trigger a sale or percentage. So Andy and I tend to stick to a percentage trailing stop. It kind of keeps things easy, allows you to hold onto your gains as the stock is going up. So I can basically say as the stock’s going up, let’s just say 25% is my trailing stop. If it slips backward, the most I will lose is 25% from where the stock is at that moment.

So just select trailing stop, enter in 25 right here for the stock value. And then I’ll say when I want this, how long I want this stock to be good for. So you have a couple options here in E-Trade. You have good for the day and you have good for 60 days and then you have good until a certain date. So for me, let’s just say I don’t want to have to look at this again until the end of the year. I’ll reevaluate at the end of the year what I want to do with this position. So I can select that. So I’m going to click save and we’re done. That was E-Trade, but as you’re going to see it’s a similar exchange on pretty much any brokerage. In fact, you want to pull up one of yours?

Andy: All right, so I’ll show you how to do it on TD Ameritrade here quick. So this is just a kind of dummy account. As you can see up here it says Manward and we have a whopping penny in there because that’s what I had to do just to create a fake account. So we won’t actually be able to make the trade. But as you’ll see through the screen here, it’s very similar to what Alex showed you with E-Trade.

So we’ll go in. This is where all the action happens. We want to sell a particular stock. Again, a stock that’s in our portfolio. We’ll just do 100 shares and we’ll keep it simple and do Ford because that’s my go-to when I’m doing a sample. Alex knows that.

Alex: You do love Ford.

Andy: And here we have all the different order types. We have trailing stop, stop limits, limits, that sort of thing. And you can see trailing stop percentage is selected. We go in here and hit 25%. Time-in-force, so we want this to be good until I cancel it, which means I got to come back in and actually turn this off. That’s what that GTC means, good till canceled, and then we just hit review order and that is it for TD Ameritrade.

Alex: That’s interesting. We should note the difference there. So in TD Ameritrade they gave you two options for when you’re trailing stop was going to expire, whereas you had some more versatility with E-Trade. I don’t know if it’s a good or a bad thing. I would have actually liked a good till canceled option on there so I don’t have to check back at any point.

Andy: But it’s good to check back every once in a while too, or you might forget it. All right, so let’s go in to Robinhood. That’s kind of a similar set up here. You can see on my screen here the stocks I own. Again, this is just a dummy account. But let’s go ahead and sell our shares or put a stop loss in on our shares of Great Lakes Dredge and Dock. You can see I bought it at $4.95. It’s up to $10.87 now, so we more than doubled our money. So we’ll go ahead and sell that.

So you can see the different price action here. We have a shot of just this stock up here in the upper right-hand corner. We hit the sell button. We have one share, so we’ll put in one share. You can see the various prices. Then we have to go to this guy and change our order type. And so we just go to trailing stop order. Very simple. Again, we have percentage or the amount. We’re going to do percentage to keep things simple. 25%, do one price. Again, good for the day, good till canceled. That’s that GTC. And then you can see here how much we’ll sell it for. And then we just hit review order and it would go through from that.

So it’s very, very simple. No matter what brokerage account you’re using, it’s all very similar. So we encourage you to check out this form of selling. Don’t try to do willy-nilly selling. My rule is always know when you’re going to sell when you buy the stock. An easiest answer to that question is by setting a stock percentage in your head before you make that trade. So I normally go with a 25% trailing stop-

Alex: If you wanted to change it up like… Because I’ve seen situations where you’ve recommended kind of a tighter stop. So what are some reasons why people might not want to stick to that 25%?

Andy: Sure. So it really comes down to volatility. You’re going to have to have a good understanding of some of the metrics around the individual stock. But a stock like Ford or something or a larger company, if it’s moving 25% below its high, something fundamentally has changed.

Alex: Sure.

Andy: But if you’re looking at a wildcat gold mine or something where a 50% price swing might be normal, you can look at the standard deviations and do the math. So the more volatile it is that the bigger the stop-loss. You might want to go 35%, 45%. But a bigger company like Apple or something that you don’t expect to move more than 10% out of normal noise or something, you might want to go with a 15% trailing stop. The point is to protect yourself from the normal day-to-day noise and get yourself out of a position if something fundamentally breaks. If the big numbers change, it’ll kick you out of that stock before it falls even further. It’s for when that sea change comes, the tide’s changing, that’s when you want to get out. And that’s what the trailing stop’s designed to protect you from.

Alex: So there you have it. I hope you found this video useful. Trailing stops, we’ll constantly try and make the case for them. They’re a great tool for any investor and they can actually save you a lot of money, maybe even make you a lot of money.

Andy: Yeah. I mean, historically they’ve been showing you the math is out there, the research is out there that shows that by using and sticking with a trailing stop strategy, you can boost the average portfolio by something like 300% or more. So they absolutely can save you and make you a lot of money.