Importance of Trailing and Protective Stops in Day Trading

Learn About Day Trading

Trailing and protective stops are the most popular stops used in day trading. Both have their own areas of application, so depending on your situation you can exercise them two.

In this article, we have given you a brief on the two types of stops, so read on…

Trailing Stops

Trailing stop is one of the widely used stops in day trading. It is designed keeping in mind the profit potential. It is used by the day traders to maximize their profits. There are varied kinds of trailing stops used while carrying out day trading and one among them is the break in the 15 minute 20 simple moving average, in which the candlestick bar lies on the side of the 20 moving average. It is at this point the trader uses the stop to secure his position.

Another trailing stop is the 15 minute 20 moving average. It is based on a similar pattern but has a slight variation in its use. This is used quite often in the day trading market characterized by large moves. This type of trailing stop is basically used to take the advantage of partial profits. Out of all the trailing stops, the one that is used the most is break under the previous day's low. It is used widely in the volatile markets such as day trading market. The options of trailing stops are many and it is up to you to decide as to which one is the best for you.

Protective Stops

These stops are used mainly to protect the partial profits. They come into force at the level of price resistance. Now when we say price resistance, it can mean both the previous price resistance as well as the moving average resistance. As mentioned before, protective stop is used to take the partial profits, we would like to emphasize here that partial profits are mostly taken at the time when there has been a big movement in the price in the morning time or it happens during the last 30 minutes of day trading.

Thus, trailing stop and protective stop are extensively used by the traders while taking the profits in day trading.