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Why expert traders use trailing stops to mitigate the inherent risks?

by Trailing Crypto cryptocurrency experts

Crypto trading is gaining huge momentum among investors and traders with each passing year. There are thousands of cryptocurrency coins available along with a vast choice of trading exchanges, platforms, and resources to trade. Crypto trading is all about buying and selling digital assets while earning profits from price movements.

If you are a novice crypto trader, there are chances that you will be looking to explore the best and most profitable ways to earn without investing much time and effort. Many people consider investing in cryptocurrencies as an easier task, but due to the lack of knowledge and strategies, they end up with huge losses.

In the crypto trading world, there are numerous tools and strategies which expert/regular traders use to maximize their potential gains while minimizing the risks. Trailing stop order is one such strategy which traders could use to close the trades in case of market reversal. This is an effective risk management tool used by traders to avoid losses. Trailing stop orders can be used in different ways like trailing stop sell, trailing limit sell, trailing stop limit order, and more.

Trailing stop

This order is actually a variation of the standard stop order which could help traders to manage their exit strategy while following the current market trend. This is a conditional order where the trader uses a trailing amount rather than specifying the stop price to determine the right time to submit a market order. The trailing amount here is defined in terms of either points or percentage which follows the stock price as it moves up or down.

The trailing stop orders follow the market price movement of the crypto asset in real-time and stop automatically when the market changes trends. The operation of a trailing stop order involves:

• For long positions, the trailing stop price will go up in line with the market and will stop whenever the price of the asset falls. And, the position will be closed automatically whenever its price falls to the predefined level.

• During the short position, the trailing stop order will follow the downward movement and will stop moving whenever the price rises. This position will be closed automatically whenever the price reaches the preset level.

Trailing stop order will be activated only whenever it is a hit by the price. If you want to mitigate the inherent risks in the crypto trading market, making use of trailing limit sell and trailing stop sell orders works best in bearish market trends.

Understanding trailing stop limit orders

A trailing stop limit order allows traders to set a trailing amount or percentage. Whenever you set a trailing stop limit order, the system continually recalculates the stop price as there is a market fluctuation. When the stop price is a hit, a buy/sell limit order will be submitted. The trailing stop limit order guarantees a specific execution price. In this order type, the limit sell order trails the market price of the crypto asset and converts it into market order at the set price or at the better price. The order can be used in two ways:

• Trailing limit buy order

• Trailing limit sell orders

Let’s understand about these orders with an example.

Example

Assuming any crypto asset say XYZ has a current price of $20 and you submit a sell trailing stop limit order with a $5 trailing amount and a $1 limit offset value, the order's initial stop price will be $15 (20 – 5). Whenever the market price rises, the stop price will also change, and when the market price falls, the stop price doesn’t change. Once the stop price is reached, the order will be triggered.

Before the sell order is triggered, if the market price rises to as high as $30 or more, the stop price will be adjusted to $25 (30 – 5). Whenever the market price falls to $25 or lower, a sell trailing stop limit order set at $24 (25 – 1) will be submitted automatically. And market order will be triggered for sell.

On the other side, trailing limit buy is just the opposite of a trailing limit sell order.

Advantages of trailing stop orders

There are several benefits of using trailing stop orders in your trading strategies. In case, your analysis of the market goes wrong then you will exit the trade automatically with a predefined loss. But, if your analysis is correct, there will be no limit earning the potential gains that you can churn out of the trade. The best part about this order type is that the stop loss price of the asset will move along with the market price movement.

These orders allow you to customize the trading strategy according to your chosen risk management plan and its percentage could be changed from time to time as per the convenience of the trader.

Using trailing stop limit orders at automated trading platforms

Understanding current market trends, different trading strategies, and technical indicators can help you make trading and investing decisions in crypto assets. There are multiple patterns and indications that you as a trader may investigate. The best crypto trading platform like TrailingCrypto allows its traders to place trailing stop limit orders and more automatically with some preset strategies.

Make sure to revise your strategy timely due to constant market fluctuations. If you are trading via any crypto trading platform, firstly you need to connect it to your exchange via making use of APIs. After that, you have to simply set up a trailing stop order with some given guidelines. Here the trail market price will follow the market automatically.

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About Trailing Crypto Advanced   cryptocurrency experts

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Joined APSense since, July 8th, 2019, From Gurgaon, India.

Created on Aug 21st 2023 11:13. Viewed 101 times.

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