Hello, traders. I'm Mike Obucina, Senior Content
Producer here TD Ameritrade. And in this video,
I'm going to show you how to place trail stop orders
on the Thinkorswim desktop platform. We're going to show you
a few different examples, starting with how to do a trail
stop based off of $1 offset. Second, we'll do one
with a percentage offset. And third, I'll show you how
to do a value or tick offset using a futures contract. And finally at the
end, we're going to talk a little bit
about trail stop limit orders, which differ slightly
from a trail stop market order. So stick around
and check that out. For now let's jump
in and get started. OK, to get started,
I'm going to show you how to place a trail stop
order on shares of stock that you already
own in your account. Now in our demonstration
account here, we have 100 shares of Starbucks. I'm going to use
that as our example. We bought the stock at 81.07. Stock currently trading 85.68. So we have an unrealized
profit of about $461. Now let's imagine we want
to start our trail step $2 below the current trading price. To get started, we're going to
right click on the position, hover over create
closing order, and we're going to select with stop. You can see below in our
order entry tools a sell stop order has been
cued up by default. This is just a
standard stop order. So we do have to make
some modifications here. To do that, we're going
to go to the order type and change it from
stop to trail stop. Now before I select this, I want
you to notice the price column. By default on a stop
order is set to a price level, $1 below the
current trading price. The link column, there's
nothing in there. I want you to keep
an eye on this. Now as I switch this
from stop to trail stop, you can see that two
things have changed. We no longer see a price
in the price column. Instead, we see by default
a minus $0.10 offset. And then in the link
column we have a selection. By default it's set
to the mark price. You can change this. And you would change
us on a number of different factors, which
we'll explain in a second. But if we use the mark price
to price our trail stop, what this is
essentially doing is it will take the mark
price, which is halfway between the bid and the ask of
the security you're trading. And depending on your offset, it
will calculate your trail stop price. Now we said we want
to do a $2 trail stop. So when I type in minus two,
hit Enter on my keyboard. And now we have that $2
trail stop offset selected. And when we hit
confirm and send, whatever the mark price
is, once again, halfway between the bid
and the ask, it's going to subtract $2
from that, and that will be our starting trail
stop price for this order. Now, why would you use
something besides mark price? Maybe you want to use the
bid price, or the ask price, or the last price. Well, it really comes down
to the stock your trading. If it's a liquid stock, meaning
there's many shares traded, and it has a tight
bid ask spread. In this case, Starbucks
is generally speaking, $0.01 to $0.02 wide
an it's bid ask. There's really no issue
using the mark price to calculate that. But if you had a stock
with a really wide bid ask spread, maybe a $1 or
$2 wide bid ask spread. Maybe you're trading
a smaller stock, it's a little less liquid. Then pricing your trail stop
off that mark price may not be the smartest thing. Because, the width
of that spread could put your trail
stop within the bid ask spread, automatically
triggering your order. So be very careful when
you're using trail stops on stocks that aren't liquid. So that is essentially what this
function will allow you to do, is determine what that trail
price will be priced off of. Now, the last
thing we want to do is we're going to change
this from a day order to good till cancel. Because, maybe today
Starbucks doesn't sell off $2, and we want this working for
more than one trading session. So once I'm ready to go, I'm
going to hit confirm and send. Can review the order
one last time, hit send. OK let's go over to
the monitor tab now. And you can see it
under working orders, here is our trail stop order. The software has
calculated the mark price. When we hit confirm and send,
it subtracted $2 to create our starting trail
stop price of $83.70. Now, you can see
the mark is just $0.02 below where it was when
it calculated this trail stop. If we see this mark
go to 85.71, you will see this trail
stop move to 83.71. And every penny it
continues to climb after that, this trail stop will
automatically change with it. Now, you can see the mark
has gone below 85.70. So our trail stop
is staying still. It's not going anywhere. And that's how a
trail stops works. If the stock goes down, your
stock price stays the same. If the stock goes up
from the initial mark price of when you put it in,
then it will continue to climb. Each tick it goes
up with the stock. And there you can see, the stock
has now gone above our original mark price of $85.70. It's now trading at 85.72. And as it continues
to climb, you can see our trail stop
is automatically moving. It started at 83.70, it
has now gone up $0.05. So as the stock
continues to climb, so will that distance between
the stock and the trail stop price. So if the stock does
go down from here, we've now locked in potentially
another $0.05 of profit on the stock. So that's how a trail
stop works and that's how the software calculates it. And it automatically
works in the background. There's nothing you really need
to do to adjust that price, unless you want to
cancel the trail stop and start with a
new trail amount. OK. For our next example,
I'm going to show you how to do a trail stop. But instead of
dollar amount, we're going to use a
percentage amount. And for this example, I'm
going to use our shares of McDonald's. We have 16 shares,
we bought at 177.60. Stock has gone up significantly,
up to $220 and change here. We have a potential
profit of $690 that we haven't realized yet. Now, with this example
let's do a trail stop 10% below the current price. So to get started, we're going
to right click on our position. Hover over, create
closing order, and select, with stop, again. This time we'll also
change us to trail stop. Now the difference is, instead
of putting a dollar offset, I'm going to click this little
icon next to our price field until we get to the
percentage icon. Now you can see we have
a percentage offset. I'm still going to do
this off the mark price. Because once again, McDonald's
is a very liquid stock. Very tight bid ask spread,
so no worries there. And I'm going to
type in minus 10%. Hit Enter on my keyboard,
and change it to GTC. We'll hit confirm and send. And just like
before, the software will calculate our
starting stop price. But this time, instead of mark
price minus dollar amount, it took mark price minus
10% of the mark price value. And it's subtracted that to
create our starting trail stop price of 198.77. And just like our
Starbucks example, if the stock goes down,
it will stay here. If the stock goes up from
our starting mark price that was used in this
calculation, you will see the stock
price automatically tick up with the stock. OK for our third
example, I'm going to show you how to do a trail
stop using a tick offset. Now, you're probably not
going to use this with stock. You can however. But generally speaking,
you're probably only going to use this
type of trail stop if you're trading
something like futures. And for you non futures traders
out there, just stick with me. But if you trade futures and
you want to do a tick offset, here's how you'll do it. To show this example, I'm
going to go to the trade tab and we're going to trade
the S&P E-mini futures, symbol forward slash ES. Now brief primer
on these futures, they tick in quarters,
not pennies like a stock. So the prices are going to
go from 50 to 75, to $1 even, back to 75, to $1 even. So they're ticking in
quarter increments, but because of the contract
multiplier in terms, necessarily how much notional
value this contract controls, each quarter tick in the
S&P E-mini future equates to $12.50. So if, let's say you wanted
to risk 20 ticks to make, I don't know, 50
ticks, you would be risking 20 ticks on the S&P. And for one contract,
we can quickly do the math on what that is. So 20 ticks would be $250. And it's just as easy for
us to create a tick offset in our trail stop order. So to do that, we're
first going to right click on the ask price. Because we're going
to buy this future. We're going to hit, buy
custom, select, with stop. And we're going to change
the order type once again to trail stop. And there is our
standard dollar offset. But remember, this 250
it doesn't really-- you have to know the
contract value to understand what this is worth. And because we're
doing 20 ticks, we're doing
essentially minus $5. It would be a $5
move in the index. But money wise,
that would be $250. So we're going to change this
from plus or minus dollar, to this little staircase. And we're going to
change this to minus 20. And there's our minus 20 ticks. And we're just going to change
this opening order to a market order so we can
quickly see this fill. I'm going to hit
confirm and send. And then you see we've
been filled on our future. Now, I actually want
to go to the chart tab and open up the
Active Trader Ladder. And you can see, there is
our fill price of 33.32 even, and there's our trail stop,
20 ticks below the market. Now if S&P E-mini futures
go above our initial opening price, this trail stop will
once again automatically move with the market. If the market goes down,
it will stay on pat at our original 20 tick offset. And there you can see,
as the market moved above our initial fill
price, our trail stop has been moved from
27.25 to 27 and 1/2. And as it continues to
move up, so all the trails stop, just like we saw in our
stock positions and orders that we did earlier
in the video. All right, finally
you might be asking, what about a trail stop limit? Well , it's pretty
much a similar process. However, just a few caveats
that I want to explain as we do one of these. So I'm going to
use the Coca-Cola shares as our example. We have 66 shares,
traded at 44.35. Stocks at 50.34, So once again,
we have an unrealized profit. Let's right click. We're going to hit, create
closing order with stop. And this time, instead of
changing it to trail stop, we're just going to
select trail stop limit. Now you'll notice that
unlike our trail stop, where this top column
was set to mark, and we can show you what
that looks like again. This essentially is
creating a trail stop limit. Now, what did we do in
the first three examples? Well we created trail
stop market orders. You can see the
market denotation here in all of our working orders. What that means is, if any of
our trail stop prices get hit, a market order will be set to
sell either our shares of stock or close out our
futures position. Now, why is that important? Well, a market order
guarantees of fill. However, you won't know what
your actual fill price is until the order been completed. And in a fast market
or in a liquid market, your fill price could be lower
and even substantially lower than what your
stock price is at. So with trail stop
market orders, we're more concerned about
getting out of the position. We're less concerned about the
exact price that we get out. However, if we go back
to our trail stop limit, order you can see is when
we select this order, we now can select
a desired price that once our trail
stop gets activated, this price will be the limit
price to sell our shares. Now remember what
a limit order is. A limit order defines-- you say, I want to sell
at this price or better. Which means if the market's
below your limit price, you won't get a fill. But you'll be guaranteed
that if the market trades up to and through that
limit price, you'll get a fill at your
price or better. Now if you're less
concerned about getting out of the position and
you're more concerned about the price you get out,
you would utilize a trail stop limit. However, I would recommend
making a few tweaks as you set this up to ensure
that you also get a fill, assuming even if the market
is slightly illiquid or even a fast market at that moment. And here's how you can do that. We'll start with first off
creating our trail stop amount. So let's do the same thing. We're going to do this-- and this time we'll
just do $1 offset. And now because Coca-Cola
is a liquid stock, once again, we're
not necessarily concerned about pricing
our trail stop off of any other value
than the mark. But, if you're trading
an illiquid stock, once again, be careful on how
you create that trail stop. Now, next we have to actually
create our limit price once this fills. Now you might be
asking yourself, how am I going to know what
price the stock's trading at when my stock
could be moving up and this trail stop
amount could be moving up? That's a great question. And honestly, it's
one of the reasons why you have to be very careful
when you use a trail stop limit. So what you can do is, you can
change this from a manual price to the, say last price. So what I mean by that is, once
your trail stop gets triggered, the last traded
price at that moment, you can then use to calculate
the value of your limit order. And to ensure that you at least
get a fill on your limit order, something that some traders like
to do is they'll actually put the limit price
maybe $0.25 or $0.10, whatever they feel
comfortable with, below the last traded price. And what that will do
is, let's imagine stock is trading of 50.36. Let's say the trail
stop goes in at 49.36. Well if you get
triggered at 49.36, the limit order will go in $0.25
below that, which essentially will get you an automatic fill
at the best price available. And assuming that Coca-Cola
isn't gapping down really fast, we should get a fill at
or near the trigger price that initially triggered
our trail stop. We'll change this to
good till cancelled. Hit confirm and send. And there you'll see there's
our trail stop limit order. And it's essentially
doing the same thing is are the trail stops. It starts out at value. If the stock goes up,
this will go up with it. If the stock goes down
and this gets triggered, a limit order will be
triggered to sell our shares and our limit price
will be calculated off of the last traded price when
this stop order triggers, minus $0.25. And once again, you
might be saying, Mike why would I do that? Why would I give up $0.25? But remember, if you put in a
limit order below the market, you should get a fill at
the best available bid price or somewhere near there. Because technically, you've put
in a marketable limit order. And your limit order
would basically go to the front of the line and
hopefully you get a fair fill. And once again,
this is the trying to do the best of both worlds. We're trying to get a fill
but also guarantee a price. If the price gapped
below that $0.25 cushion, we still would be-- we still would have
shares and we'd have a limit order working
above the current market. So the bottom line
is, if you want to make sure you get
out of a position, utilize the trail stop. If you're more worried
about getting a fair price and you're willing to
sacrifice in actual fill to make sure that you get
filled at a certain price, then you would use
trail stop limit. But just know that each
order has its pros and cons. And understand them both
before you utilize them. Thanks for watching the video. If you like this and you want to
check out other videos like it, head over to our
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check out the learning center at tlc.thinkorswim.com. Thanks again for watching
the video and happy trading.
