This is a day and age where the price of a stock or a commodity (think oil, natural gas, gold, silver) can turn on a dime. In a New York minute big gains can be erased. All it takes is some guru dropping a hint or emitting a smelly piece of gossip about a company or a natural resource and in one session (or in one hour) we might see a 10%, 20% or 50% turnaround in the price.

With that in mind I want to revisit the topic of a trailing stop-loss. Most brokerage firms allow us to place these orders, which in essence says, " if the price of my stock [or other investment vehicle] falls (drops below) by a certain % from either the price I bought it at or the price it has risen to, then let the investment be sold automatically at the next best price."

Now that isn't exactly what a trailing stop-loss order entails, and I would encourage you to discuss the precise meaning and mechanism with the brokerage firm that you use to buy and sell investments.

The principle here is that if I bought General Electric (NYSE:GE) at $33.50 and placed a 25% trailing stop-loss on it, if the price then moved down approximately $25.13, I would be "stopped out" of the stock automatically and it would be sold.

If after I bought GE and it rose to $35 and then dropped 25%, I'd be stopped out at a price of approximately $26..25.

Matt Badiali who write the S&A Oil Report (www.StansberryResearch.com) recently addressed how this system protected some of his gains and also protected him from some serious losses. Here's how he described it:

"Beyond protecting our capital, trailing stops also let us maximize our gains...

In my research, I speak to many investors. Nearly all my contacts are experienced traders and professionals. These investors do their homework on a company before investing. They nearly always buy at the right time. However, these experienced traders make one common mistake – they exit too early.

That's because they don't know when to exit a trade. Many of these "savvy" traders attempt to calculate a "fair value" – the estimated dollar value for the company. When the share price hits that value, they sell the stock. That works fine in a rational market. But this doesn't take into account the potential gains of irrational exuberance.

We did our homework on our companies and got in at the right time (for the most part). Then we let our trailing stops tell us when to exit. We made some spectacular gains and limited our losses – exactly what we want to do.

If you followed your trailing stops, then you took a few small losses and pocketed some nice gains. That's the power of trailing stops. We use them to protect our investment and show us when to exit our trades.

Overall, we averaged an 18% gain among all the stopped out positions. And remember, of the nine position that closed at a loss, we held five of them for less than six months. These positions simply never got the chance to develop.

Now, let's look at that list of companies we stopped out of and see how we did.

Four of our stocks (Crosstex,[Nasdaq:XTXI], Magellan Midstream Partners[NYSE:MMP], Buckeye Partners[NYSE:BPL], and Stone Energy [NYSE:SGY] stopped out July 7, in time to be sold in last month's issue. We're including them in this month's coverage because we believe the price action is part of the broader downtrend."

We all know that the downside to a trailing stop-loss is that you can get whip-lashed out of a stock on some violent volatility. This recently happened to me with Denison Mines (AMEX:DNN) when I was stopped out at $5 a share. Yesterday (8/12/08) on a great earnings report the stock was up 22% in one day (ouch...double ouch!!).

I can also tell you many times when a trailing stop-loss saved my fanny from either losing all my gains in a stock or from losing more than 20 or 25% (whichever my trailing stop-loss was) only to see the stock fall another 25% or more.

So each must decide for themselves which is smarter and which is safer. If your biggest concern is safety, protecting gains and limiting your losses, you might want to consider making the trailing stop-loss a regular part of your investing discipline.