Question:
When a trading platform does not allow for trailing stops, how can a trader secure profits before the trade actually hits the profit target?
Egemeka from Stop town
Answer:
Egemeka, your question actually has two distinct parts to it, so let me answer both for you.
The first part of your question is easy. If your trading platform does not allow trailing stops, either dump that platform and find a new one that does allow trailing stops, or learn to live with market stops (forget limit stops). If you limit yourself to market stops, you are giving up a great tool for taking profit above and beyond your target, when, and if, you catch a runner, that is a trade that takes off and keeps on going. Regardless of your trading platform, any successful trader will tell you stops are invaluable for taking profit and limiting losses, which leads me to the second part of your question.
The number one rule in trading (as far as I am concerned) is to protect and preserve capital, even above trading. Simply, it is incredibly difficult to protect and preserve capital without using stops. Appropriately placed stops make otherwise difficult decisions easy. Either you are in or you are out. Does it get any simpler than that? Better yet, if you placed your stop according to a plan, or strategy, you know how much you will lose, for certain, and you have a baseline for how much profit you will take, if the market moves your way.
Now, with a trailing stop, you can use it in more than one way. One way is to simply place your percent stop or dollar stop and be done with it. You are in or out, if the stock moves strongly in either direction. Another way is to tighten your trailing stop as you move higher into profit. For example, if you started with a 3% trailing stop and your market quickly moved up 5%, you now have a 2% profit. To protect that profit, reduce your trailing stop to 1% and let it run. If it rolls back 1% and you stop out, so be it. You exit the trade with at least a 1% profit, and that, my friend, is the name of the game—take profit.
Trade in the day; invest in your life …
