One great way of playing the market is by using a trailing stop to simply follow the stock up. A trailing stop is ideal because it follows the stock up when the stock does go up, but it does not pull back as the stock pulls back. This allows you to limit your losses and secure your gains.

There are a ton of advantages to using trailing stops.

1. Limited Loss Potential

No matter how good of a trader you are you will eventually have losses. You will need a way to limit them so that they do not affect your overall return that much.

If you have a 10% trailing stop that means the most you can possibly lose off of your investment would be 10%, which puts your mind at ease and lets you factor it into your bottom line.

2. It Does Not Limit Gains

Another great thing about trailing stops is that it does not limit gains. If you bought stock XYZ and used the same 10% trailing stop on it that stop would have no affect on the potential increase of the stock. The stock could double or triple and you would not have to sell it. Only when the stock pulls back 10% would the stop activate and you would exit the position.

3. The Emotions Are Taken Out of Trading

As humans we all have emotions, fear, greed, etc. Well when you are dealing with money those emotions can work against you big time.

Creating your own game plan is important. But it is also important to stick to your plan and not change it every 5 minutes. That is why trailing stops are so powerful because you just set it up and never have to make another decision about the trade again.

A trailing stop will follow the stock up and exit as soon as it turns around. Really the only thing you need to do is to find a strong stock and set up the trailing stop on it.

The great thing about this is that you can allow your computer to apply your “game plan” for you. Because computers never panic sell and only do what they are told this can be a great way to stick to your plan and not alter it every time something major happens.

To find more about the how to use trailing stops or to get other trading tips visit Shaun’s site which offers stock market tips. This article, Advantages of Using Trailing Stops is released under a creative commons attribution license.