It's a fantastic decision to learn how to use a trailing stop loss on Charles Schwab! This powerful tool can be a game-changer for managing risk and protecting your profits in the dynamic world of trading. Instead of constantly monitoring your positions, a trailing stop loss allows you to automate your exit strategy, letting your winners run while limiting potential downside.
Ready to take control of your trades? Let's dive in!
How to Do a Trailing Stop Loss on Charles Schwab: A Step-by-Step Guide
A trailing stop order is a conditional order that moves with the price of your security. Unlike a traditional stop-loss, which is set at a fixed price, a trailing stop adjusts its trigger price as the stock's price moves in your favor. This means you can lock in gains as the stock climbs, but it will still trigger a sell order if the price reverses by a specified amount.
There are two primary ways to set a trailing stop loss on Charles Schwab: through the main Schwab.com website or through their advanced trading platforms like thinkorswim. This guide will focus on the Schwab.com website as it's generally more accessible for most users, but we'll touch upon thinkorswim where relevant.
 |
| How To Do A Trailing Stop Loss On Charles Schwab |
Step 1: Accessing the Trade Ticket
First things first, let's get you to the right place to set up your order.
Are you logged into your Charles Schwab account? If not, please do so now. Once logged in, you'll typically see your dashboard or account summary.
A. Navigate to the Trade Section:
QuickTip: Don’t just consume — reflect.
- Look for a "Trade" or "Trading" tab or link in the main navigation menu. It's usually prominently displayed.
- Click on it. This will likely bring up various trading options.
B. Select the All-In-One Trade Ticket:
- Within the trading section, you're looking for something like "All-In-One Trade Ticket" or "Place an Order." Charles Schwab often consolidates various order types into this single, comprehensive ticket.
- Click on this option. This will open the interface where you can specify your trade details.
Step 2: Specifying Your Security and Action
Now that you're on the trade ticket, let's tell Schwab what you want to trade and what you want to do.
A. Enter the Symbol:
- In the "Symbol" field, type in the ticker symbol of the stock or ETF you want to apply the trailing stop loss to. For example, if you own Apple stock, you'd type "AAPL."
- As you type, Schwab may suggest symbols; ensure you select the correct one.
B. Select the Action: "Sell"
- Since you're setting up a stop-loss to protect your existing position, you'll be selling the security.
- From the "Action" dropdown menu, select "Sell."
C. Enter the Quantity:
- Specify the number of shares you wish to apply the trailing stop loss to. This should be the quantity of the security you currently hold that you want to protect.
- Double-check this amount to ensure it matches your intentions.
Step 3: Choosing the Trailing Stop Order Type
This is the core of setting up your trailing stop. Pay close attention to these options.
QuickTip: Pay close attention to transitions.
A. Select "Trailing Stop" from Order Type:
- Locate the "Order Type" dropdown menu. It usually defaults to "Market" or "Limit."
- Click on this dropdown and scroll down until you find "Trailing Stop." Select it.
B. Define the Trailing Amount: This is arguably the most crucial part. You'll have two choices for how your trailing stop will operate:
-
1. Percentage (%):
- This is often the preferred method for many traders. You set a percentage that the stock price can drop from its highest point before triggering a sell.
- Example: If you set a 5% trailing stop on a stock currently at $100, your stop would initially be at $95. If the stock goes up to $110, your stop automatically moves up to $104.50 ($110 - 5%). If the stock then drops back down to $104.50, your order triggers.
- To use this: Select "Percentage" and then enter your desired percentage (e.g., "5" for 5%).
- Consider your volatility tolerance when choosing this percentage. A highly volatile stock might need a larger percentage to avoid premature triggers.
-
2. Points (or Dollars):
- This allows you to set a fixed dollar amount that the stock price can drop from its highest point before triggering a sell.
- Example: If you set a $2 trailing stop on a stock currently at $100, your stop would initially be at $98. If the stock rises to $105, your stop automatically moves to $103 ($105 - $2). If the stock then drops to $103, your order triggers.
- To use this: Select "Points" and then enter your desired dollar amount (e.g., "2.00" for $2.00).
- This method can be useful if you have a specific dollar amount of risk you're willing to take per share.
Important Note: The trailing stop price for long positions does not adjust lower if the stock price declines. It only moves up as the stock's price rises. If the stock drops, the trailing stop remains at its highest adjusted point until it is either triggered or the stock recovers and makes a new high.
Step 4: Setting the Time in Force (TIF)
The Time in Force determines how long your order remains active.
 |
A. Choose Your Desired Duration:
- "Day": Your order will be active only for the current trading day. If it's not executed by market close, it will expire. This is good for short-term strategies.
- "Good 'til Canceled" (GTC): Your order will remain active for an extended period, typically up to 180 calendar days on Charles Schwab, unless it's executed or you manually cancel it. This is generally preferred for longer-term positions where you want ongoing protection.
- Select the option that best suits your trading strategy. For most people looking to protect a position long-term, GTC is the common choice.
Step 5: Review and Place Your Order
You're almost there! This is the final and critical step to ensure everything is correct.
Tip: Check back if you skimmed too fast.
A. Review All Order Details:
- Before you click "Place Order," Schwab will present a "Verify Order" or "Review Order" screen.
- Carefully examine every detail:
- Symbol: Is it the correct stock?
- Action: Is it "Sell"?
- Quantity: Is it the right number of shares?
- Order Type: Is it "Trailing Stop"?
- Trailing Amount: Is the percentage or dollar amount correct?
- Time in Force: Is it "Day" or "GTC" as intended?
- Estimated Commission/Fees: Understand any associated costs.
This is your last chance to make corrections. If anything looks off, go back and adjust it.
B. Understand the Disclaimers:
- Schwab will likely have disclaimers about trailing stop orders. Read them thoroughly. Key points often include:
- No Price Guarantee: Once triggered, a trailing stop becomes a market order. In fast-moving markets, the execution price may be significantly different from the trigger price.
- Market Hours: Trailing stops generally only trigger during regular market hours.
- Gaps: If a stock gaps down significantly overnight or during a trading halt, your order might execute much lower than your trailing stop amount.
C. Place the Order:
- Once you've reviewed everything and are comfortable, click "Place Order."
- You'll typically receive an order confirmation.
Additional Considerations & Advanced Tips
- thinkorswim Platform: If you're an active trader, Charles Schwab's thinkorswim platform offers even more robust and visual ways to set up trailing stops, including directly from charts. The principles are similar, but the interface is more feature-rich.
- Paper Trading: Before using real money, consider practicing with Schwab's paperMoney® feature on thinkorswim. This allows you to simulate trades in a live market environment without risking capital, helping you get comfortable with trailing stops.
- Adjusting Your Trailing Stop: Once placed, you can typically view your active orders in the "Order Status" section of Schwab.com. You cannot directly change a trailing stop order to another order type, or vice versa. If you need to modify the trailing amount or time in force, you'll usually need to cancel the existing order and place a new one.
- Understanding Volatility: The "right" trailing stop percentage or dollar amount depends heavily on the volatility of the stock you're trading. A highly volatile stock might "whipsaw" and trigger a tight stop prematurely, while a very stable stock might allow for a tighter stop.
- Portfolio Management: Don't rely solely on trailing stops. They are a tool within a broader risk management strategy. Consider your overall portfolio diversification, position sizing, and profit targets.
10 Related FAQ Questions
Here are some frequently asked questions about trailing stop losses on Charles Schwab:
How to Monitor a Trailing Stop Loss on Charles Schwab? You can monitor your active trailing stop loss orders by navigating to the "Order Status" section on Schwab.com or within the thinkorswim platform. This section will show you all your pending orders, including trailing stops, and their current status.
Tip: Jot down one takeaway from this post.
How to Cancel a Trailing Stop Loss on Charles Schwab? To cancel a trailing stop loss order, go to your "Order Status" section on Schwab.com or thinkorswim, locate the specific trailing stop order, and you should see an option to "Cancel" it. Confirm the cancellation when prompted.
How to Adjust a Trailing Stop Loss on Charles Schwab? You cannot directly "adjust" a trailing stop order in terms of its type or parameters once placed. To change the trailing amount (percentage or points) or the Time in Force, you must first cancel the existing trailing stop order and then place a completely new trailing stop order with the desired modifications.
How to Choose the Right Trailing Percentage for My Trailing Stop Loss? Choosing the right percentage depends on the stock's volatility and your risk tolerance. For highly volatile stocks, a larger percentage (e.g., 10-15%) might be more appropriate to avoid premature triggers. For less volatile stocks, a tighter percentage (e.g., 3-7%) might suffice. Consider using technical indicators like Average True Range (ATR) to gauge a stock's typical price swings.
How to Understand the Difference Between a Trailing Stop and a Regular Stop Loss? A regular stop loss is set at a fixed price. If the stock falls to or below that price, a market order is triggered. A trailing stop loss is dynamic; it moves up with the stock's price, maintaining a specified distance (percentage or points) below the highest price achieved. It only triggers when the stock falls by that specified amount from its peak.
How to Set a Trailing Stop Loss for a Short Position on Charles Schwab? For a short position (where you profit from a stock going down), a trailing stop buy order is used. It would trail the lowest price the stock reaches, moving down as the stock drops. If the stock then rises by your specified trailing amount from its low, a market order to buy (to cover your short) would be triggered. The process on Schwab is similar, but you would select "Buy" as the action and ensure you understand how the trailing mechanism works for short positions (trailing the bid price).
How to Use Trailing Stops in Fast-Moving Markets? In fast-moving markets, trailing stops can be very effective for capturing significant gains while still providing downside protection. However, be aware that "slippage" can occur, meaning your execution price might be significantly different from your trigger price due to rapid price movements. Consider using a slightly wider trailing amount to account for increased volatility.
How to Account for Gaps with Trailing Stop Losses? Trailing stop losses do not protect against overnight or weekend price gaps. If a stock opens significantly below your trailing stop trigger price due to news or market events, your order will execute at the next available market price, which could be much lower than your intended stop. Always be aware of potential gap risks.
How to Learn More About Advanced Order Types on Charles Schwab? Charles Schwab offers extensive educational resources on their website and within the thinkorswim platform. Look for sections on "Order Types," "Advanced Trading," or "Education" to find articles, videos, and tutorials on trailing stops, OCO (One Cancels Other) orders, OTO (One Triggers Other) orders, and more. Their client service can also provide guidance.
How to Determine if a Trailing Stop Loss is Right for My Strategy? Trailing stop losses are ideal for strategies where you want to let profits run but also have a defined exit point if the trend reverses. They are less suitable for very short-term day trading or highly illiquid stocks where wide bid-ask spreads can cause premature triggers or poor execution. Evaluate your trading style, the specific security, and your risk tolerance to determine if a trailing stop aligns with your approach.
 |
