Trailing Stop Orders on thinkorswim® Desktop

Narrator: Hello, traders. I'm Jeremy Kuhlman 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're going to do one with a percentage offset; and finally, at the end, we're going to talk a little bit more about trail stop limit orders, which differ slightly from trail stop market orders. Keep in mind, I'm showing thinkorswim desktop, so things will look a little bit different on thinkorswim web or mobile.

For now, let's jump in and get started.

Animation: thinkorswim appears with the Monitor tab and the Activity and Positions subtab open.

Narrator: Okay, we're going to get started here by showing you how to create a trail stop of a stock you already own in your account. First thing you're going to want to do is go up here to the Monitor tab, Activity and Positions and we're going to want to come down to our Position Statement and locate a stock we'd like to sell here with the trail stop. For this example, today, we'll use Microsoft.

You can see I own 100 shares of that stock in this account; it's currently up about $0.65, but we are losing a little bit of money, we're down about $107 on that stock. So, come over here to the left and I'm going to go ahead and right click on Microsoft. Go over here to Create closing order. You'll see three different choices here, limit.

Animation: A dropdown menu next to Create closing order shows three choices: Sell -100 MSFT @287.90 LMT, with STOP, and with OCO Bracket.

Narrator: We're going to go ahead and pick STOP and what that platform will do is pull up the exact quantity that you own as a sell stop. By default, it's going to put you $1 below the market and this is a standard market stop.

What we're going to do is we're actually going to come over here and click on the word here STOP and go ahead and change over to TRAILSTOP. Now, two different fields appeared here. One says Link MARK. The other one, instead of a price, now has an offset, currently set to $0.10. That is the default.

The first thing I want to do is show you how to change that offset. I'm going to go ahead and click in this box here and I'm going to change it to $2. After you type in the price, best practice to just hit enter here and that'll actually set in that price.

Now, if you look here at this box here that says Link MARK. When you click on that, this is actually the price that this is going to be trailing off over here, the $2. So, the mark price is actually right in between the bid and the ask and we use that number because, in a wider market, it tends to sit right in the middle. Now that leads me to why there's some other choices on here. We have LAST, BID, ASK, the bid/ask spread, average price.

Animation: A dropdown below Link shows seven choices: MAN, LAST, BID, ASK, ASK/BID, MARK, AVG PRC.

The reason we have some of these other choices is, depending on the stock you're trading, in a low liquidity environment, the bid/ask spread for a stock could be extremely wide. We could be talking $1, maybe even $2 wide.

Now like I explained before the mark price is smack dab right in between the two of these prices and, when you have a liquid stock like Microsoft, you might have a penny or two pennies in between the spread, MARK works just fine, but if we're talking about a stock that maybe has a $1 or $2 in the spread and you set this trail stop to trigger off the mark price, well then you might actually trigger right smack dab in the middle and actually get filled at the bid or the ask, which can lead to an unfavorable fill.

So, there are certain circumstances where you might want to use the bid or ask as opposed to the mark price but for the stop we're using today, we're just going to use the mark price. It's going to be our best way to go.

So, we got a $2 off the mark. Now, what the platform is doing is looking at that mark price and taking $2 off of that and I'm going to show you how that looks on the next page.
 
I'm going to come over here to the word DAY and I want to make sure we change this over to good 'til cancel.

Animation: A dropdown below TIF (time-in-force) shows four choices: DAY, GTC, EXT, and GTC-EXT. Selection is changed from DAY to GTC.

Narrator: Stop orders are traditionally made good 'til cancel because we don't know if this stock is going to drop $2 today. It might take weeks, months, or never. I'm going to go ahead and click on Confirm and Send. We can take a look at our order here: sell 100 Microsoft trail stop, off the mark price, $2. Good to review your order, and we're just going to go ahead and click on Send from there.

Now, you notice the order ticket kind of disappeared. Where did it go? We're going to go back up here to Monitor and you'll notice we have our Working Orders section and we have a trail stop for Microsoft.

Now, let's look at this field right over here. You see it says we got a market order, we got mark minus two trail, and currently our price for our stop is set at $285.84. So, let's go ahead and look over here at this mark price. It's currently $287.79 and you'll notice that we're going to be $2 off of that mark and what is our stop price right now $285.87. Now you might say, "Well this is actually not exactly $2." And, that's because, in the time that we've placed this order, the mark price has been ticking down. Now the stop is here to protect you. So, as the stock ticks down, gets closer and closer to our price, it remains fixed.

Now if the stock starts to go back up and goes past where the mark was when we submitted this order, this trail stop order will slowly begin to tick up, remaining $2 below the stock at all times as long as it moves in the positive direction for us. Should it start to move the other direction, it's going to lock on there and be there to protect us from loss.

Next, we're going to go ahead and go back and we're going to look at how to place a trail stop, but we're going to change instead of a dollar value, we're going to show you how to trade it off of a percentage change.

For this example, I'm going to actually go ahead and use Apple. It's a very similar process to what we just did before. I'm going to go ahead and right click on Apple, same process, go Create closing order, go over here with STOP. Let's see again platform pulls up same number of shares, standard regular stop order. First thing we want to do is select TRAILSTOP.

Now, if you look, everything is exactly the same: We're trailing off the mark, we have a $0.10 offset. If you notice just to the left of that $0.10, we get a plus/minus here. I want you to click on that twice. When you do that, it's going to pull up this percentage field. Now, this is a whole dollar percentage. So, what you want to do is click in here. Let's set it to 10%. That seems like a fair number. I'm going to go ahead and highlight that right here, type in 10.00, press enter, and that's going to go ahead and set that 10% trail.

Last thing, remember, go ahead and click over here, change that to good 'til canceled. We're going to go click on Confirm and Send. We can review our order one more time and then go ahead and click on Send.

Lastly, remember, go back up here to Monitor. Let's find that working order and you can see that field again same deal: Mark minus 10% trail. So, instead of it just being a dollar value, the platform is calculating a 10% decrease from the mark price and creating a dollar-value stop for that. You can actually see it right here at $149.40. So, that would be a 10% drop off the mark.

Okay, now last thing, you all might be wondering about a trail stop limit. Now what we'll do is we'll go ahead and create that. It's a slightly different type of order. It's got a few caveats that are a little tricky to use and so I'd like to go over that with you today.

We're going to go ahead and use DAL as an example. I'm going to right click on that stock. We're going to go here to Create closing order, same exact process. We're going to choose with STOP. Now, we're going to come back over here, change it over to TRAILSTOPLIMIT this time. Now, when you do a limit order, trail stop limit, you'll notice there's an extra line; there's a price now, a limit price. If we switch that back to what we're looking at before, no price, just says market. The reason is that we are now going to be able to select a limit order price to sell our stock once our stop is reached.

In the prior example, once our stop was reached, we were just going to sell at the market price. Now the advantage of that is it guarantees that you will sell but it does not guarantee at what price you will receive for selling stock. With the limit order, it can be a little bit more price sensitive. You can select a specific price that you want to take. Now, there is a difficulty with this because, let's say the stop order is triggered, we won't know where the stock is trading. So, when you start attaching a limit order to this, that doesn't necessarily guarantee that you're going to get filled and you're going to close out your position.

Now, thinkorswim's clever. It's a smart platform and it allows you to actually connect the limit price you're using to a live price at the time the stock is triggered and if you look over here to the left, it says MAN. MAN stands for manual, which means you're manually going to choose your limit order price. If you click on that, you can actually see you can select some quote at the time that the stop price is reached.

Animation: A dropdown below Link shows seven choices: MAN, LAST, BID, ASK, ASK/BID, MARK, AVG PRC. Selection is changed from MAN to LAST.

So, I'm going to go ahead and use LAST an example. When you pick LAST here, you can see there's no more price. There's just a choice to do plus or minus.
 
Now, what we can do is we actually can, and a lot of people will do this, is to increase the probability of getting a fill, what you're going to do is try to improve the price at the time the stop is triggered. So, what we're going to do is we're just going to go ahead as an example take $0.25 off of the last price at the time the order is triggered. We're going to set our trail to $2. Okay.

Now, let's think about what this order is going to do here. So, we're trailing off the mark by $2. Should the stock go all the way down, hit our stop order and trigger, the platform is going to look at the last price and create a limit order $0.25 less than the last price. Now, again, that doesn't guarantee you're going to get filled, but what it's going to do is increase the likelihood of that because you're going below the market. Now, when you're trying to sell below the market what you're doing is creating called a marketable limit order and those feel very similar to a market order, but you'll never get filled worse than the limit price that you create. So, you have a little bit more price control, higher probability of getting filled, but still doesn't necessarily guarantee that you're going to get a fill like you would with a regular trail stop.

So, we'll go ahead and we'll put this through. Remember, go through good 'til cancel, Confirm and Send, click on Send. Let's go ahead and check the status of that again. Now we've got three orders here. Now notice again these two say market, this one up here says last minus 25. So, that's waiting here, $2 trail, waiting for that price to trigger as soon as it does it creates a limit order, hopefully gets us out at a pretty good price.

Now each of these orders have their pros and cons. The trail stop limit does give you more control over price and what price you might receive a fill and the trail stop does give you a higher probability of selling the stock you own, even though you won't necessarily receive that price or know which exact price you'll get filled at.

Those are a few of the examples of how to use trail stops on thinkorswim. If you found this helpful and you want to check out other videos like it, subscribe to our YouTube channel to get notified when we put out new content. You can also go over to Insights & Education on schwab.com for more videos and other education.

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