Frequently Asked Questions
Market Lab Report
What is the difference between a trailing stop and a tight stop?
A trailing stop is one you keep underneath where your positon is trading, and you it generally rises as the stock rises - the intent is to have an "out point" that ensures you keep a profit in the position. A "tight stop" is one that is very close from where you just bought a stock, e.g., buying VMW at 90 and placing a stop at 88.28, which is just a little over 2% - that is a very "tight" stop so that if the stock doesn't do what you thought it should have, you will be stopped out with a very tiny loss. Since, for example, we are trying to anticipate a breakout in VMW rather than buying a pocket pivot or breakout, we keep a tight stop on the initial position, knowing that we can easily come right back and buy the stock back if it does show a pocket pivot or new-high breakout buy point.
Published: Jan 1 2011