The Lexus and the Olive Tree: Understanding Globalization By Thomas Friedman Q: What is a trailing stop-loss and why should I follow one?
We believe in locking in your profits. Here’s why you should resolutely apply a 20% trailing stop strategy. Stocks go up. And stocks go down. But these days, it seems that the only movement you see in the markets is excessive. Where stocks used to go up, they now soar overnight. And where they used to “correct”… comes the plunge. That’s what makes it so hard to optimize your profits. For years, it has been the recommendation of the Taipan Group of publications to set and observe a trailing stop. A trailing stop is really quite simple: If shares go down 20% below your purchase price, or fall 20% below the stock’s high, you bite the bullet and sell… keeping your potential loss to 20%. Ask your broker whether he can place a selling order with a trailing stop for you. If he doesn’t offer this service (and few discount or online brokers do), watch the prices of your shares carefully and react fast if the price touches the 20% limit. Of course, depending on your threshold for pain the li
