I understand that trailing stop loss increases with increase in value and this is good during a bullish increase.
But what if I want to short a stock. I know I’ll have to place the stop loss above my buying price. So will the trailing stop loss cause the stop loss to move above if the market doesn’t go down but instead goes up which is against my decision. If this is the case wouldn’t it be counter intuitive as the stop loss will keep on increasing with increase in price?
Trailing stop loss moves only when the market moves in your direction.
Sorry. As I’m a bit confused. Could you explain this a little
Let’s say you bought 100 shares of X @ 100 and kept target as 110 and Stop Loss @ 95, and trailing stop-loss value as 1. Now when the price goes above Rs. 100 your sl will be revised. If X reaches 104, then your sl will become 99.
And what if short the shares of the company X and keep my target at 90 and stop loss at 105. But due to a bad trade the price start increasing. Will the stop loss then increase according to increasing price or stay at 105?
It will stay at 105 as the market is not going in your direction. It’s going in opposite direction. In such case, you need to manually update the SL.
And for a short position with TSL, the TSL will reduce if the share price reduces.