I'm new to stock investing (only a few months now). I've made some OK gains in some of my stocks and I want to protect my unrealized profits from evaporating if share prices start to crater. I'm with Questrade. I found out the hard way that Canadian exchanges don't allow the use of Trailing Stop Losses which I think is very lame (as usual, Americans have an advantage that we don't). I got a message that says I have to put the order through as a Stop Limit or a Trailing Stop Limit. Problem is, I don't know what the difference is. I just want to minimize my profit losses as much as possible relative to the current share price in the event it starts to go down. I'm surmising that a Trailing Stop Limit is as close to a Trailing Stop Loss as we can use. I don't understand the difference between one of those and a Trailing Stop. I'm particularly confused by the two parts to the Stop Limit - the Stop price and the Limit price. I read an article that tried to explain it but I still don't get it. I understand Trailing Stop Losses and being able to use those would make things so much easier, but no - can't allow Canadians to do that. Could somebody please explain the difference and which one is more advantageous as far as minimizing profit losses?
You bot BULLY at $25 and it is now trading at $33. You've decided that if it gets under the low of 2 days ago at $30.25 you want to take profits rather than ride out a correction, but you're going to allow it to sink below that low by 25 cents. So you place your Stop Limit order with a stop at $30. Now as for the limit part, if you set the limit at say $28, that sets the bottom dollar you are willing to accept for a selling price. Problem is, if it gaps below $28 at the open you'll be left holding the bag; your stop got triggered but the market did not trade above your limit, so no sale took place. So, you need to think about that limit price. If its a quality stock that pays dividends maybe you'd set a high limit (just below your stop price), but if it's a speculative issue then you might want to set the limit at $10, $5, or even $1 and get whatever you can get out of that POS if really bad news hits it.
A stop-loss will sell when your stop price is triggered no matter what the price. When the stop is triggered it becomes a market order. A stop-limit is a bracket; a window. When the stop is triggered it becomes a limit order.
I don't use trailing stops or trailing stop limit orders because I'm willing to check the market every day and adjust my stops manually. I think the usual method is that the stop is automatically adjusted based on a percent loss. The limit is probably automatically adjusted the same way. So you might have your trailing stop at a 10% loss and your limit at a 20% loss. There are also more sophisticated methods. You'd need to see what your broker/platform offers.
The above assumes you don't short sell. If you do, then the stop loss is above the market price and the limit price is above the stop loss price.
Onepoint272. Thank you very much for all of your responses. However, call me dense but I still don't understand the concept of the Limit Offset. Let me know if I understand this correctly using a hypothetical example... Let's suppose I want to trigger a sell order if a stock I'm invested in drops more than 10%. So, for example I buy a stock at $50. It goes to $100 but then starts to drop in value. If I'm understanding this correctly the current trailing stop value is now $90 (10% of $100). If it drops below this I want a sell order to be triggered. Now, as for the limit offset if I specify, say, $1 does that mean a sell order will be triggered if the stock drops to $89 or less? Conversely, if I specified a percentage instead of a dollar amount is that a percentage of the current value of the stock or a percentage of the stop value? So, in the above example would the limit offset percentage represent $1 (1% of $100) or $.90 (1% of the current trailing stop value of $90)? Sounds like it would be easier to specify a set dollar amount as opposed to a percentage but the $64,00 question is what does the amount of the Limit Offset ($ or %) represent and what is a reasonable amount relative to the trailing stop value (or is it relative to the stock's value(?)? I wish Canadian exchanges would just allow Trailing Stop orders. It would make it so much easier. I don't know why I can't wrap my head around the Limit Offset concept but I just can't grasp it, sorry. Essentially, I want my Trailing Stop Limit orders to mimic as closely as possible Trailing Stop orders. So, I want the limit offset to be as close as reasonably possible and still trigger a sell order if the value of the stock drops more than the trailing stop percentage I specify (say, 10%). I have a TSL order created for one of my stocks right now (10% trailing stop) and I know for a fact it has dropped way more than that in the last 2 weeks. Yet, the sell order didn't trigger. I'm assuming this is because the Limit Offset I specified is too small relative to the stock or Stop Loss value. Again, I wanted it to mimic a Trailing Stop order as closely as possible so I chose a Limit Offset of $.0005 (next to $0; hoping the sell order would be triggered using a Limit Offset that was essentially the same as the trailing stop value). I've tried to get a straight answer and real-world example from three different Questrade reps and none of them were willing or able to do so. They have been a whole lot of useless regarding this particular question. Very disappointed in their lack of willingness to help me understand and place my TSLs.
