Question

When the last sale price of HSHK is $25, I enter a stop loss order to sell at $22 trailing by $3.

In which of the following situations does my order get triggered?

State what the corresponding stop prices are and finally whether it is triggered or not and the triggered 6 price.

a. $25 is followed by trades at $23, $28 and $29.

b. $25 is followed by trades at $30, $31 and $28.

c. $25 is followed by trades at $24, $27, $25 and $24.

d. $25 is followed by trades at $26, $24, $30, $28, $29 and $28

Can anyone help me to calculate a-d?

Answer 1

Current Stock Price = $25

Stop Loss now = $22

Stop Loss Trail = $3

a.

Initial Stop Loss = $22

When Stock Moves from $25 to $23 = $22

When Stock Moves from $23 to $28 = $25

When Stock Moves from $28 to $29 = $26

Stop Loss will not be triggered if stock price follows pattern given in (a). In no case, price reached stop loss level.

b.

Initial Stop Loss = $22

When Stock Moves from $25 to $30 = $27

When Stock Moves from $30 to $31 = $28

When Stock Moves from $31 to $28 = Stop Loss is Triggered

Stop Loss will be triggered at $28 if stock price follows pattern given in (b). In trailing stop loss level, stop loss is determined by the previous high a stop price reaches. Since previous high was $31, stop loss was $28 which was reached when stock price fall from m$31 to $28.

c.

Initial Stop Loss = $22

When Stock Moves from $25 to $24 = $22

When Stock Moves from $24 to $27 = $24

When Stock Moves from $27 to $25 = $24

When Stock Moves from $25 to $24 = Stop Loss is Triggered

Stop Loss will be triggered at $24 if stock price follows pattern given in (c). In trailing stop loss level, stop loss is determined by the previous high a stop price reaches. Since previous high was $27, stop loss was $24 which was reached when stock price fall from m$25 to $24.

d.

Initial Stop Loss = $22

When Stock Moves from $25 to $26 = $23

When Stock Moves from $26 to $24 = $23

When Stock Moves from $24 to $30 = $27

When Stock Moves from $30 to $28 = $27

When Stock Moves from $28 to $29 = $27

When Stock Moves from $29 to $28 = $27

Stop Loss will not be triggered if stock price follows pattern given in (d). In trailing stop loss level, stop loss is determined by the previous high a stop price reaches. Since previous high was $30, stop loss was $27 which was never reached during (d). Previous to $30, $26 was the highest point after order for which $23 was the stop loss level which was not reached either.

Thus, in a trailing stop loss order, stop loss is revised whenever stock breaks previous high price made by stock after the order is placed. If stock doesn't break that previous high, stop loss level will be the same and if stock price falls below that stop loss will be triggered and stock will be sold.