When Stop Loss is on for a stock you own, Toll Booth keeps a trailing stop-limit sell order on part of your shares.
- Trigger price. This follows the stock's price upward and never moves down. If the price falls to it, the sell order is activated.
- Floor price. This sits a little below the trigger. Once the order is activated, your shares sell at the floor price or better, never below it.
How far below the price these sit depends on how much the stock usually moves in a day, and on whether you're currently up or down on the stock.
The examples below are illustrations. Real distances are recalculated as the stock's volatility changes.
Example 1: A winning stock keeps climbing, then turns down
You bought at $50. The stock is now $60 and usually moves about 8% a day.
- At $60: trigger $58.65 (2.25% below), floor $58.19
- The stock rises to $70: trigger moves up to $68.43, floor $67.89
The stock then drops from $70, and your shares sell around $68. The trigger followed the stock from $60 to $70 without you changing anything, so most of the gain is kept.
Example 2: A losing stock keeps falling
You bought at $50 and the stock has dropped to $45.
- Without Stop Loss: Toll Booth won't place a trailing sell below your most recent purchase price, to avoid locking in a loss. If the stock slides to $35, you still own it at $35.
- With Stop Loss: a trailing sell is placed anyway, with a trigger around $43.65 and a floor around $43.25. If the stock keeps falling, you're out near $43.50 instead of riding it down to $35.
For a stock that's down, Stop Loss accepts a smaller loss now to avoid a bigger one later.
Example 3: A steady, slow-moving stock
You bought at $180. The stock is now $200 and usually moves only about 2% a day.
- Trigger $197.00 (1.5% below), floor $196.00
Calm stocks get a close trail because small moves don't often trip the trigger by accident. Your exit stays within a few dollars of the high.
Example 4: A volatile stock with big daily swings
You bought at $25. The stock is now $30 and routinely moves 20% in a day.
- Trigger $28.65 (4.5% below), floor $28.19
Toll Booth leaves more room for jumpy stocks so an ordinary swing doesn't sell your shares, while still keeping the exit reasonably close to the high.
Example 5: The stock gaps down overnight
Continuing Example 1: the trigger is $68.43 and the floor is $67.89. Bad news comes out and the stock opens at $62.
The order is activated, but it won't sell below the $67.89 floor. It waits. If the stock gets back to $67.89, it sells there. If it doesn't, you still own the shares.
This is the trade-off of a floor price. It protects you from a panic sale at a bad price, but it can't guarantee a sale in a sudden gap.
Example 6: A large position is sold gradually
You own 100 shares that are up nicely.
- Each protective order covers only a few shares at a time, usually 2, sometimes more when your account carries more leverage. It is never more than half of what you can sell.
- When one order fills, a new one can be placed on the next cycle at the new trailing level.
- Shares committed to covered calls are held back.
- The last share is sold with a regular limit order, not a stop.
A brief dip sells a small slice, not your whole position. If the stock recovers, most of your shares recover with it.
Example 7: Your shares are already protected by puts
You own 200 shares and 2 put options covering all 200.
Your puts already set a floor on your losses, so Stop Loss is not applied to this position. No trailing sell is added on top.
Example 8: A buy order for the same stock is open
While there's an open buy order for the same stock, the trailing stop is not used, so it doesn't clash with the purchase. For stocks priced $100 or more that face significant downside risk, a fixed stop may be used instead. Its trigger is the lower of the stock's 55-day average or 1% below the current price, and its floor is 6% below the trigger. Otherwise no protective sell is placed until the buy order finishes.
Things Stop Loss doesn't change
- It doesn't override your do-not-close settings, your preserve equities preference, or your account's trading approvals.
- It doesn't apply to stocks under $1, Treasury ETFs, or the symbols Toll Booth reserves for its put-selling strategies.
- A close trail can sell during a normal dip that later recovers. That's the price of keeping more of your gains when a real reversal comes.