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Trailing Stop Order

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Definition of 'Trailing Stop Order'

Trailing stops are trade orders set at a certain percentage or dollar decimal spread away from the market price. As the market price moves, your stop price changes accordingly. Your stop price "trails", or follows, the market price. Trailing stop order executions are based on the bid (sell orders) and ask (buy orders) price of the stock.

There are 3 basic types of trailing stop orders:

Trailing Sell Stop Orders

- The stop price adjusts upward as the stock price increases.
- The trigger price does not move when the stock price decreases. This is sometimes referred to ratcheting. i.e. the stop will ratchet up behind the market price.

Trailing Buy Stop Order

- The stop price (trigger price) adjusts downward as the stock price decreases.
- The trigger price does not move when the stock price increases.
- Objective is to buy the stock as soon as it stops moving down and makes an upward spike.

Trailing Buy to Cover Stop Orders
- The stop price (trigger price) adjusts downward as the stock price decreases.
- The trigger price does not move when the stock price increases.

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