Course Content
Introduction
The stock market is a marketplace where shares of publicly listed companies are bought and sold. It plays a central role in the modern economy, acting as a bridge between businesses that need capital and investors who have money to invest. The origins of the stock market trace back to the early 1600s, when the Dutch East India Company issued the first shares on the Amsterdam Stock Exchange. This allowed the company to raise money from the public to fund its trade ventures, in return for a share of the profits. Over time, this concept evolved, and today, stock markets exist all over the world, with major exchanges like the New York Stock Exchange (NYSE), NASDAQ, and London Stock Exchange facilitating trillions of dollars in trade. At its core, the stock market enables businesses to grow. By offering shares to the public through a process called an Initial Public Offering (IPO), companies can raise large amounts of money to expand operations, invest in research, or develop new products—without having to rely solely on banks or private lenders. In return, investors get the opportunity to share in the company’s success through rising share prices and dividends. Investing in the stock market can be a powerful way to build wealth over time. Wise investments in strong companies can generate solid returns, especially when held for the long term. Many individuals have grown their savings substantially by investing in companies that have thrived. However, it’s important to remember that the stock market carries risks. Prices can go up, but they can also go down—sometimes sharply. Economic downturns, company mismanagement, or shifts in the global market can all lead to losses. For beginners, it's essential to approach investing with caution, avoid chasing “get rich quick” schemes, and take the time to understand what you're investing in. In short, the stock market is a powerful tool for economic growth and personal financial development—but like all tools, it must be used wisely.
0/7
Introduction
Stock Markets Around The World
Listing On A Stock Market
How Stocks are Bought and Sold
Trade Date vs Settlement Date, What is T + 2?
What Is A Stock Market Index?
ETF’s and Index Funds
Fundamental Analysis
0/8
Fundamental Analysis Introduction
Understanding Revenue and Profit
Earnings Per Share and PE Ratio
Understanding the Balance Sheet
Understanding Cashflow
Dividends – How Investors Earn Income From Their Shares
What Causes Stock Prices To Rise And Fall
Understanding Market Capitalization
Technical Analysis
Along with Fundamental Analysis, Investors increasingly rely on Technical Analysis to decide whether to buy or sell a stock. Here we will explore the main techniques.
0/8
Introduction to Technical Analysis
How To Read A Price Chart – The Basics
Understanding Support and Resistance Levels
Identifying Trends and Drawing Trendlines
Understanding Moving Averages
Introduction to Momentum Indicators
Chart Patterns – Spotting Setups in the Market
Volume – The Power Behind a Price Movement
Investing Safely and Profitably
How do professionals invest safely and profitably? Some key concepts such as position sizing and stop losses.
0/8
How To Place Trades And Manage Risk
Using A Trailing Stop To Protect Profits and Limit Loss
Diversification and Portfolio Management
Taking Profits
Common Investor Mistakes And How To Avoid Them
A Quick Word On Taxes
Summary and Beginner’s Checklist
10 Must Read Books for Investors and Traders
Beginners guide to investing in the Stock Market

Using A Trailing Stop To Protect Profits and Limit Loss

 

A trailing stop is a type of stop-loss order that moves with the market as the stock price rises (or falls, if you’re shorting), helping you:

 

  • Protect profits

  • Limit downside risk

  • Stay in a trend longer without manually adjusting your stop

 

It’s a great tool for traders and investors who want to ride trends, while having a safety net in place.

 

 

How a Trailing Stop Works

 

Instead of setting a fixed stop-loss at a specific price, a trailing stop moves dynamically with the stock.

 

You set it as either:

  • A percentage below the highest price reached

  • Or a fixed dollar amount below the highest price

 

📌 As the stock price increases, the stop price adjusts upward


📌 If the stock price falls, the stop stays put


📌 If the price hits the trailing stop, the position is automatically sold

 

 

Example: Trailing Stop in Action

 

Let’s say you buy a stock at $100, and you place a $5 trailing stop:

  • If the price rises to $110, your stop-loss is now at $105

  • If the stock drops back to $105, it triggers a sell order

  • If the stock keeps rising, the stop follows:

    • At $115, stop is $110

    • At $120, stop is $115

 

If the price reverses from $120 to $115, the trade closes — locking in a $15 profit per share

 

 

Why Use a Trailing Stop?

 

  • Protects profits as the stock rises

  • Limits your downside if the stock falls

  • Takes emotion out of decision-making

  • Works well in trending markets

 

 

Setting a Trailing Stop – Fixed $ vs % Method

 

Method Example Use Case
Fixed $ Trail stock by $3 Simpler for low-volatility stocks
Percentage Trail stock by 5% Adjusts to different price levels easily

 

You can set a trailing stop when placing your trade, or apply one later through your trading platform

 

 

Trailing Stop for Short Trades

 

Trailing stops also work for short positions (when you sell high and hope to buy lower):

 

  • If you short a stock at $100 and place a $5 trailing stop

  • As the price falls to $90, your stop adjusts to $95

  • If price reverses back up to $95, your trade closes (buy to cover)

 

 

Things to Keep in Mind

 

  • A tight trailing stop (e.g., 1%) may get triggered by small price swings

  • A looser trailing stop (e.g., 10%) gives more room but risks giving back more profit

  • Best used in strong trends — avoid using in choppy or sideways markets

 

Tip: Use recent support levels or the Average True Range (ATR) to choose your trailing stop distance

 

 

Summary

 

A trailing stop is an advanced stop-loss order that:

  • Follows the price upward (for long positions)

  • Locks in gains while allowing room for growth

  • Helps reduce emotional decision-making

 

It’s ideal for traders and investors who want to protect capital while giving winning trades room to breathe.

 

Previous
Next

Stock Market Course