Trailing Loss Limit Percent vs Dollar
Trailing loss limit is a great option for people who can’t watch their stocks. The problem I have run into is which to choose, percent or a base dollar amount. I love percents when it come to profit, but is it really the best option for a loss?
Example:
You buy a stock at $10 with a trailing loss limit of 10%. The loss limit would be $1.
Let’s say the stock makes a move:
$12 – loss limit of $1.2 or $10.80 : Profit of $.80.
$15 – loss limit of $1.5 or $13.50 : Profit of $3.50.
Now let’s look at the dollar limit:
$10 with a trailing loss of $1.
$12 – loss limit of $1 or $11.00 : Profit of $1.
$15 – loss limit of $1 or $14.0 : Profit of $4.
The numbers are convincing. I can speak from experience that the percent can bite into your profits quicker than the dollar amount. The biggest drawback of the percent is that it gets bigger as your profits grow.
Good automation should never limit or sacrifice your capital and profits.
Happy trading!