Three Trailing Stops
Here are three trailing stops that are simple and effective:
Trading Range
Overall Percent
Pro-Level Percent
In my book I go into greater detail than I will here today but the general description to follow will give the basics on how these stops work.
Trading Range Stop
Take any stock chart and pick a timeframe...I prefer 90 days. Find the highest high and the lowest low for that stock in that timeframe. This distance is the distance to make a trailing stop. In the screen cap above, the amounts are 47.12 and 33.25. I go a little high and a little lower and would use 47.50 and 33.25. The high and low are $14.25 apart and you can use this to trail the stock upward, moving your sell stop to $14.25 less than the highest high as the stock moves upward. This stock works well. The only drawback is when you get into a stock at a low value, say $20 and then the stock shoots up to over $100...mathematically your stop is inadvertantly tightening as it goes higher and higher. I like to use the mathematical example of a stock trading between $2 and $3 and then advances to $100. The low was originally 66% of the high but at $100, it's 99% of the high. There is inadventant mathematical tightening with this method.
Percent
You can pick a percent decline level for any stock or portfolio. If my stock drops 10%, I will sell. This method again works well. The weakness here comes from lumping all the stocks into one basket. Some stocks have greater volatility and some have less. Some industries are more volatile. Some years are more volatile. Keep this in mind when using an overall percent.
Pro-Level Percent
I use this method and it is a combination of the first two. I look at the 90 day range for any given stock and divide the high by the low to get my stop percent. Each stock has it's own stop based on its own 90 day volatility. In the example above, I would move my stop on IGT to 33.25/47.50 = 70.00% of the new high.
