Whilst Contracts for Difference or CFDs have revolutionised the way we buy and sell stocks online we still need to adhere to the old trading truths that have been around for decades. Knowing how to implement a CFD trailing stoploss is essential to locking in profits when your position is moving in your favour.
Do CFD brokers have trailing stoplosses?
To you and I are CFD trailing stoploss sounds very simple in principle to apply however the technical side of things from the CFD brokers point of view is quite complicated. As a result not all CFD brokers will allow you to place an automated CFD trailing stoploss.
If placing a CFD trailing stoploss is important to you then be sure to ask the question of your CFD broker prior to opening your account. What you may find is that a select few market-maker CFD brokers who had a history of forex trading are able to provide a CFD trailing stoploss.
What are my alternatives for stoplosses?
If your CFD provider does not have automated trailing stoplosses then you may want to consider another method of alerting you to a price rise. For example most CFD brokers will allow you to set an alert that e-mails or SMS’s an update when your price target has been hit.
So you might be trading a $4 stock that has now moved from your entry of $4 up to $4.20 and you may wish to move your stoploss from $3.90 up to $4. In this case you would have set an alert at $4.20 and once that alert had been triggered by e-mail or SMS you would phone your broker and adjust your stop.
What about a full service broker – can they help?
As automated trailing stoplosses are relatively new you may decide to go with a full service CFD broker who can automatically update and progress your stoplosses as your position’s move in your favour. Whilst this additional service will result in an increased charge he will be well worth it rather than missing out on the potential intraday profits.
What distance should I place my stop loss?
One of the toughest and most frustrating exercises of trading is trying to determine the most appropriate trailing stoploss level that they were due to minimise your loss and maximise your gains. Selecting the most ideal stoploss level comes down to knowing your timeframe and being clear on the profit you are targeting.
Murphy’s Law would dictate that the very moment you tighten up your stoplosses, your stocks will move into the greatest trending period you have ever seen without you on it.
It would be fair to say that there is no perfect trailing stoploss but instead you will need to keep abreast of your trading numbers like your average win and average loss and making sure that your average win is always larger than your average loss.