Managing Risk with Trailing Stops: A Strategic Approach
Warren Buffett made headlines in early 2025 with a massive stock sell-off . Berkshire Hathaway, under Buffett's leadership, sold $133 billion in stocks while only purchasing $6 billion, resulting in a net sell-off of $127 billion. This aggressive selling spree is the most significant in the company's history . Buffett's decision to sell such a large amount of stock has raised concerns among investors and analysts. the stock market's current valuation is historically high, with the S&P 500's cyclically adjusted price-to-earnings (CAPE) ratio standing at 37.9, far above its 20-year average of 27. When the CAPE ratio has exceeded 35 in the past, the S&P 500 has posted negative average returns. In the fast-paced world of trading and investing, managing risk is paramount to long-term success. One effective tool that traders use to protect their profits and limit losses is the trailing stop. This dynamic order type adjusts itself based on the price movement of an...