# Why/when should one sell stock instead of using trailing stop loss?

John bought stock X, and it has gone up (yay!).

John suspects stock X is near a peak. His options are:

1. Do nothing and see what happens (not interesting to this question)
2. Sell and take the profit
3. Set a trailing stop loss, say at 99% of the current market price

Option 2 has the downside that, if stock X goes down directly, John will lose 1% of the current market price, which may be a significant chunk of his profit. On the other hand, the probability that he loses more than 1% is 0, while there is a >0 probability that stock X increases more than 1% before it goes down, yielding John even more profit. Since he cannot know what happens next, it seems the balance of probabilities always points to using trailing stop loss.

I could not find any guides on when to just sell instead of setting TSL. Is there a method to choose what to do, or is it just straight gut feeling?

• "On the other hand, the probability that he loses more than 1% is 0" That's not true. A drop of 1% triggers the stop loss at the broker, and only then a market order is placed. If the price drops by 5%, this value is used. Commented Jul 17, 2020 at 9:24
• That's a good point - large overnight drops make SL useless. Netflix seems to be doing that right today. Commented Jul 17, 2020 at 10:05
• Shouldn't he make it 98%? After all, what if the stock goes down 1.5% and then up 5%? Actually, it could go down 2.5% and then up 5%, so better make it 97%...... Commented Jul 17, 2020 at 10:21