How To: Trade the Trend with Trailing Stop Losses.

May 10, 2021

Quanta provides infrastructure solutions to the electric power, oil and gas, and communication industries and has been consistently making higher highs since its March lows last year as part of the Covid reset and has been trending beautifully with relatively little volatility.

The whole idea of trend trading is to try and find a trending stock like this one and stay in the trend as long as possible until that dreaded bend in the end where a stock will often sell off.

One of the ways to do this is with a trailing stop loss.

A trailing stop is a great conditional order type as your stop loss will continue to move up and maintain a set distance from the stocks highs as the stock price moves up, but it will never move down if the price moves down. So while the stock is going up, you will stay in the trade, but if there is a significant dip it will automatically exit you out. A good set and forget type strategy that works well if you aren't actively monitoring the market and want to protect your profits.

In this case Quanta is up 200% over the last 12 months, and up over 300% since the March lows. If you had wanted to keep it since the March lows you would have needed a stop loss of around 25%, but you can see that more recently now that some of the market uncertainty has reduced a 13% trail would keep you in the stock.

It's good to see that the stock is also respecting its 20 day moving average and using it largely as support as it trends upwards and these are often an easy way to keep an eye on whether the stock keeps moving up or whether there might be a down turn ahead.

Quanta has just had earnings and still looks pretty strong. Will be interesting to see how long it will run for.

Worth a watch.

A 25% stop loss would have kept you in the trade longer, but has much more downside before it would exit you out of the trade.