Among other things we speak on our dividend alarm side about a Trailing stop order in many articles and explanations. Instead of buying or selling a share directly it is recommended to trade with a trailing stop order during purchase and sales phases of the dividend alarm indicator. We recommend this to maximize the yield of our strategy.
With the order art Trailing Stop one can usually order his shares at better introductory rates, let profits work automated and is also able to limit his losses. Trailing stops offer important advantages and are suitable just for long-term dividend investors.
When a share has obtained a standard so that one would like to buy, he would log into its online depository and simply buy the share itself. One quite simply grasp at the current share prices. Nowadays the stock brooking is considerably volatile and multilayered, so that they are often better entry points when one still thought at the purchase. To not have to watch the market permanently, there are many different order types and order additions meanwhile.
Ways of order in the securities trading
First I would like to speak about different and more or less known (here in Germany) order ways briefly. The most used ways of orders are called Limit Order. You define one to which share price purchase or sell order shall be executed. With a Limit Order one share the exact share price of a share, at which limit the order shall be bought at most or sold at least.
Unlike the Limit Orders, the market order describe unlimited orders whose execution course does not have to be above or below a defined course. Primarily is the option to go in and get out, one what is particularly important to volatile markets. This way of order is not absolutely important for in the long run oriented investors.
The stop Loss order also benefits of a special position as an essential element for the risk and money managements. The stop Loss order serves the deficit paring and stands out that when a position reaching or falling of the price levels defined before is automatically sold at the next possible rate.
Unusual features of a Trailing stop order
The Trailing stop order was managed to let run effectively profits and limit losses appropriately. One can profit at a position getting in from more favorable share prices at the same time because the profit is the purchase. The trailing Stop Order is “made for” the Dividend Alarm strategy.
Without permanently having to keep the depository in mind, one participates of further, positive movements in the market at a simultaneous and automatic protection. At the purchase of a share these are dropping market quotations and prices increasing at the sale of a share.
At a Trailing stop like at a stop Loss order, the next possible rate is limited with a Stop-course, that is triggered at the reach or fall below the order.
The unusual feature arises, however, from the fact that the sell order follows the development of course at one up. Just at the sale of a share the profits are improved further and the stop course is gone over automatically. If the share price decreases again, the stop remains at its position. Only if the position is stopped by a greater loss on exchange and the stop course is reached, the stop order arouses and the share is sold.
A Trailig Stop order can also be helpful while getting into a position. One speaks about a stop Buy order. If the share price should further decrease, then the entry limit is let down in the predefined distance automatically. Only if the limit is reached at increasing prices, the Stop-Order triggers and the share is bought.
An investor has the possibility of fixing the relative distance of the stop to the respective share price. Either in absolute amounts such as 3 euros distance to the share price or also as a proportional value. It could be for example 10% distance to the share price. We recommend testing this order first in a sample depot. It gets obvious fast that this system, together with our dividend alarm, composite are a terrific opportunity in the long run earn at the stock markets.
Advantages and disadvantages of trailing stop orderAdvantages: The great advantage of a Trailing stop order is the automatic customization of the stop course. Investors do not forget anymore to adapt the stops to the current market situation. A Trailing stop order is suitable for investors who only have little time, work, and are not able to keep permanent in mind the open orders in the depository.
The simultaneous putting into action of profit protection and the participation of further price gains agree on a Trailing Stop order. Also, at the purchase of shares, the current price level can be safeguarded with only one order and one participates at further losses on exchange by sinking and lowers entry courses.Disadvantages: The automatic customization of the stop of order could also be a disadvantage. For example, if a stop was defined too narrowly, it can happen that positions are already stopped unintentionally at slight short-term course corrections. This costs money. Furthermore, Trailing Stop Orders are not offered by all brokers and can not be put at all German inland stock exchanges. In the case of doubt one should ask his broker whether he offers Trailing Stop Offers and if positive, at which stock exchanges they can be put…
Even if we have tried to explain the Trailing Stop Orders as well as possible, an example with graphic support is considerably more understandably with graphic support. For a simpler representation we have calculated with absolute numbers. One also can alternatively include a proportional value, such as 10%, at an actual order placing.
It should be mentioned that our Dividend Alarm also work without Trailing stop orders. We want to introduce this composite system only as a possibility to maximize the results.
Trailing stop sell order
For the first example we assume that we have a share in the depository, which now generates a dividend alarm sell signal. Moreover, this share has achieved a price level to which we are ready to sell by now.
Since we do not know whether the market further drives our share up, we secure with a Trailing Stop Order. We therefore can take further price gains along and protect the previous profits simultaneously.
It is our aim at a sale to obtain a considerably higher selling price than we would get currently. We go through every single point to the exact explanation of the graphic now. You find these points on the lower edge of the graphic. We will start at the marking START.
Currently the share costs 108 euros and it already comes from the area of 101 euros. We use a limit of 106 euros at our Trailing Stop Order. We put the Trailing stop distance on 2 euros correspondingly. Now we take a look at how ours sell order now behaves.
At first the share price raises to 109 euros.
Our Trailing Stop Order goes automatically over the selling limit in the predefined distance of 2 euros and stands now at 107 euros.
The share price rises further to 110 euros.
Our Trailing Stop Order goes automatically once more over the selling limit in the predefined distance of 2 euros and stands at 108 euros.
The next day the share price falls back on 109 euros.
The Trailing Stop Order remains at 108 euros.
Due to a euphoric market the share can add strongly and increases to 115 euros.
Our Order trailing Stop goes automatically over the selling limit of 113 euros.
Unfortunately, our share can not keep the high standard and falls back the next day on 113 euros.
Since our selling limit stands at 113 euros, the order is activated and the share is sold at the next rate.
In the further course the share price falls in our example to 110 euros and then to 108 euros. By the triggering of the selling limit, we already are in cash again.
Trailing Stop Buy Order
For the example of the Sell Order we assume that we want to buy a share that is generating a dividend alarm purchase signal at the moment. Moreover, this share has achieved a price level to which we are ready to put the share in the depository by now. As we do not know whether the share is still bought by the market, we place ourselves with a Trailing stop order. We participate of further losses on exchange and secure the currently favorable price level simultaneously.
It is our aim at a purchase to obtain a considerably more reasonable entry price as we would get it currently. We go through every single point to the exact explanation of the graphic. You find these points on the lower edge of the graphic. We will start again at the marking START.
Currently, the share costs 106 euros currently and it comes from the area of 112 euros. We use with our Trailing Stop Order a limit of 108 euros. We put the Trailing stop distance correspondingly on 2 euros. We look at how our Sell Order behaves.
At first, the share price falls on 105 euros.
Our Trailing Stop Order lowers automatically the buying limit in the predefined distance of 2 euros and stands at 107 euros.
The share price falls further up to 104 euros.
Our Trailing Stop Order lowers automatically the buying limit in the predefined distance from 2 euros to 106 euros.
The next day the share price rises to 105 euros.
The Trailing Stop Order remains at 106 euros.
The share becomes strongly sold at a panicky trading day, comes under the important brand of 100 euros and obtains Intraday a course of 99 euros.
Our Trailing Stop Order lowers automatically the buying limit to 101 euros again.
Obviously the share has achieved its low and the market recovers again. Our share already obtains a course of 101 euros again.
Since our buying limit stands at 101 euros, the order is activated and the share is bought at the next rate.
In the further course the share price rises in our example to 103 euros and then to 105 euros. By the triggering over the gone buying limit we are already since 101 euros again “on board”.
Active practice example
I can show you directly at an example from my depository Trailing Stop Order looks like in the practice. I have arranged the view a little since not all information from my depository is relevant for this article.
in the live order view you can see one actively regular Trailing stop order. There is a share which i want to sell. I put a trailing Stop Order in the system and wait until it is triggered.
At the time of the photo for the screenshot, the share price stood at 71,701 euro. The green values behind this show the change of the current day in comparison with the day before.
There is my stop course entered originally in the line of Initiale Stop. The share has obtained a standard for me at 68,50 euros for which I was ready to part with my shares. This one gray deposited number behind shows the distance of my stop course to the current share price.
At the next line in current stop I can see where my Trailing stop is currently. The Grey value behind this also shows the distance to the current share price.
In the last line I can see which distance I have chosen for the Trailing Stop (1,00 Euro).
As soon as the value of 0,644 euro deposited gray is greater than 1,00 euros (my distance chosen), the Trailing stop is adapted and gone over automatically. If the share price should give in considerably, my shares would be sold for 71,057 euro (or at the next rate).
When I have put the stop course at 67,50 euro at the beginning, the share price stood at 68,50 euro (distance 1,00 euros). I could have obtained this amount if I had sold my shares directly. With the current Trailing stop my shares would be sold automatically meanwhile for at least 71,057 euro and I have in addition the option on further price gains. This corresponds to an additional profit of 2,557 euro per share (71,057 euro minus 68,50 euro) till now.
If the market is in atmosphere and rise continuously further and if I have not chosen any too narrow distance at my Trailing stop, then additional profits can absolutely be got.
In the practice I most frequently use Trailing stop orders selling shares which have become expensive. But also for buying of shares during a purchase phase, i use Trailing Stop Order. This way of order offers services well because the sale of the markets takes place considerably faster and is volatile when the market ventures on new highs.
So you see that the dividend alarm strategy can be completed by the Trailing Stops appropriately. Trailing stops are not mandatory necessarily for the success of the dividend alarm strategy, represent however a sensible addition.