Trailing Stop not recommended?

Gemini said: "I am in the process of opening an account with Interactivebrokers.com and I was doing a bit of reading on their page to see how to place orders, etc., when I saw this in the trailing stop section: [QUOTE]IB does not recommend trailing stop orders, as there is no guarantee that your order will be filled at or near the designated stop price, which is especially dangerous in a rapidly falling market. In addition, trailing stop orders will accentuate volatility in rough markets. [/QUOTE] I don't understand why they would NOT recommend a trailing stop. What is 'dangerous' about it in a falling market? In fact, isn't that what it's for? So that you can get out as quickly as possible when it happens? And what do they mean by "accentuate volatility in rough markets"? Thanks!"

HappyHarry said: "All they're saying is that it's not guaranteed. It becomes a "market order" when the limit price is reached. Therefore, in a quickly moving market, the market order might not go off because prices are falling too much. I still think it's a good idea, you just can't think it's 100%,"

wildmandan32 said: "they are just covering their butts."

trickynick said: "I think that warning is a little bit too stern. Trailing stops are fine as long as you don't get a false sense of security from them. Prices can gap down in ways that cause your stops not to execute at the price you wanted. For example, let's say you bought BlueWidget stock at $50 a share and your trailing stop covers 20% off of your highest high and the stock is in the 90's and your highest high is 100. You'd be looking for the trailing stock to execute at 80. Well, in the middle of the trading day tomorrow it is annouced that BlueWidget's CEO just got caught with his hands in the cookie jar and the company says they will have to restate the last six quarters worth of earnings after a preliminary investigation. The stock is headed to 20 in a hurry. But wait! You have a trailing stop! Well....the problem is that there are no buyers anywhere near the range at which you would want your stop to execute. Just because the stock is HEADED to 20 doesn't mean it hits every point along the way. It hits 30 on its way to 20 (consider yourself lucky). What once was a 100% unrealized gain is now a 40% which was [i]realized[/i] without your even having to think about selling, thanks to the miricle of automated trading. As long as you understand that kind of thing can happen, there is no reason to dismiss the use of trailing stops altogether."

trickynick said: "[b]Correction to my previous reply, I meant to type:[/b] What once was a 100% unrealized gain is now a 40% [b]loss[/b] which was [i]realized[/i] without your even having to think about selling, thanks to the miricle of automated trading."

HappyHarry said: "I agree. I'm guessing not many of these don't get traded. But, they have to cover themselves."