Mastering Trailing Stop Loss Orders with DEGIRO: A Comprehensive Guide

When it comes to managing risk and locking in profits while trading, a trailing stop loss order can be an invaluable tool. If you're using DEGIRO, a popular online brokerage, understanding how to effectively utilize this feature can significantly enhance your trading strategy. This article will delve into the intricacies of trailing stop loss orders on DEGIRO, breaking down their mechanics, benefits, and practical application in real-world trading scenarios. Whether you're a seasoned trader or a novice looking to refine your risk management skills, this guide will provide the insights you need to make informed decisions and optimize your trading outcomes.

What is a Trailing Stop Loss Order?

A trailing stop loss order is a type of stop loss order that moves with the market price. Unlike a standard stop loss order, which is set at a fixed price level, a trailing stop loss adjusts itself as the price of an asset moves in your favor. This means that as the asset price increases, the stop loss level also rises, but if the price falls, the stop loss remains at its highest level. This mechanism ensures that you lock in profits while protecting yourself from significant losses.

How Trailing Stop Loss Orders Work

To better understand trailing stop loss orders, consider the following example:

1. Initial Setup: You purchase 100 shares of a stock at $50 per share.
2. Setting the Trailing Stop: You set a trailing stop loss with a trailing amount of $5. This means the stop loss will be set $5 below the highest price achieved by the stock.
3. Stock Price Movement:
   • The stock price rises to $55. The trailing stop loss is now adjusted to $50 ($55 - $5).
   • The stock price continues to rise to $60. The trailing stop loss is adjusted to $55.
   • If the stock price then falls to $55, the trailing stop loss order is triggered, and the shares are sold at $55.

In this example, the trailing stop loss allowed you to secure a profit of $5 per share, protecting you from a potential decline in the stock price.

Benefits of Using Trailing Stop Loss Orders

1. Profit Protection: Trailing stop losses help you lock in profits as the asset price moves in your favor, reducing the risk of losing gains when the price reverses.
2. Automated Risk Management: Once set, trailing stop losses automatically adjust themselves, eliminating the need for constant monitoring and manual adjustments.
3. Psychological Comfort: By having a predefined exit strategy, traders can avoid emotional decision-making during market fluctuations.

Setting Up Trailing Stop Loss Orders on DEGIRO

DEGIRO offers a user-friendly platform for executing trailing stop loss orders. Here’s a step-by-step guide to setting up a trailing stop loss order on DEGIRO:

1. Log In to Your DEGIRO Account: Access your DEGIRO trading account through the web platform or mobile app.
2. Select Your Trade: Choose the stock or asset for which you want to set a trailing stop loss.
3. Initiate the Order: Click on the 'Trade' button and select the option for a trailing stop loss order.
4. Enter the Details:
   • Trailing Amount: Specify the trailing amount or percentage. This determines how far behind the current market price the stop loss will be.
   • Quantity: Enter the number of shares or contracts you want to apply the trailing stop loss to.
5. Confirm the Order: Review the order details and confirm the setup.

Practical Tips for Using Trailing Stop Loss Orders

1. Choose the Right Trailing Amount: Setting a trailing amount that is too tight may result in premature stop outs, while setting it too wide might not adequately protect your profits. Consider the asset’s volatility and trading patterns when determining the trailing amount.
2. Regular Monitoring: Even though trailing stop losses automate risk management, it’s essential to periodically review and adjust your orders based on market conditions and your trading strategy.
3. Combine with Other Strategies: Trailing stop losses work best when combined with other trading strategies, such as technical analysis and market trend analysis, to enhance overall trading effectiveness.

Common Mistakes to Avoid

1. Over-Reliance on Trailing Stops: While trailing stop losses are useful, they should not be your sole risk management tool. Incorporate other strategies and safeguards to protect your portfolio.
2. Ignoring Market Conditions: Sudden market movements or news events can impact the effectiveness of trailing stop losses. Stay informed about market trends and news that could affect your trades.
3. Setting Inappropriate Levels: Avoid setting trailing stop loss levels that are too close to the current market price, as this can trigger the stop loss prematurely.

Conclusion

Mastering the use of trailing stop loss orders on DEGIRO can significantly enhance your trading strategy by protecting profits and managing risk effectively. By understanding how trailing stop losses work, setting them up correctly, and avoiding common pitfalls, you can optimize your trading outcomes and achieve greater financial success. Whether you're trading stocks, ETFs, or other financial instruments, incorporating trailing stop loss orders into your strategy can provide a valuable layer of protection and help you navigate the complexities of the market with confidence.