How to Minimize Risks While Earning Profits through Trailing Stop Buy?

by Trailing Crypto cryptocurrency experts

Risk management is the trademark of any kind of successful crypto trading strategy. Developing the right strategy involves dynamic stop loss level which further ensures good returns. The goal of each crypto trader is to earn more profits from the market price movements in a shorter period. And, the best and right tool to trade smartly while generating risks and optimizing risks is trailing stop order. This order automatically closes the transaction if there is opposite price movement in market.

To maximize profits in crypto trading, there are two options available for trader:

·         Setting a take profit level and move it manually along with the stop as soon as price moves towards the predefined value

·         Using trailing stop

The first option is little bit tougher as trader has to watch the market trends continually to move orders and close the trade accordingly. But the second option is quite effective and easier in long run. Let’s understand about this order in deep and how is it profitable:

Trailing stop

A trailing stop is a kind of stop order where your stop loss level trails the current market level by a specified amount or percentage. This is a conditional order that trails the asset price instead of using a fixed stop price. This order type allows you to incorporate a sell trailing stop order or a trailing stop buy order. This kind of order helps traders to better manage a position.

Trailing stop helps a trader to secure their trades automatically when and if it moves in his favor. It lets traders to book their profit while mitigating the risks if the price of asset reverses.  One more thing that is uncommon about this order is that it moves in only one direction. You can set this order in the form of percentage or may set it at a particular distance.

Let’s understand it with an example:

Let’s say, a trader X opens a long position on BTC at $2000. He is ready to lose 10% of his total income, which means that he is setting a stop loss order at$1800. At this point, his long position turns out to be a success as market price of BTC moves towards $2500. However, there are chances that he fails to take profits and the price of BTC soon falls down. After a few hours, BTC reaches to the breakeven point ($2000) and after some time it triggers the stop loss order after hitting $1800.

Now in this case, the trader have missed the opportunity to earn profit and instead suffered loss. The trader refused to take profits above at $2500 as he believes that the price for BTC would go higher. Besides, the price retraced back to the entry price i.e. $2000, only to hit the stop loss. This set of events led to a 10% loss for the trader.

Now let’s analyze how it would have worked with a trailing stop order:

Here if the trader opens the same position at the same price. The only difference is that he sets a trailing stop order of 10%. The price of BTCmoves to $2500 only to fall down.

But what happens here is that the exchange triggers trailing stop order as BTC drops 10% from $2500 and hits $2250. Trader will close the position here and end up with a profit of $250.

So placing a trailing stop order is quite profitable as compared to placing a stop order or a stop loss order. The best crypto trading platforms like TrailingCrypto allows traders to set trailing stop buy or sell orders easily via several exchanges. Signals are also provided to help traders play smartly.

Using Trailing stop order to buy an asset

With a trailing stop buy order, the stop price follows the lowest price of the asset set by the trader. If or when the asset price rises above the lowest price by the trailing amount or more, it will place a buy market order. This way, the trader will buy the asset at the best possible price.

Usually, trailing stop buy order is placed at a fixed distance above the current market price of the crypto asset. As the price of asset falls, the trigger price adjusts itself automatically. If the price of asset increases, the trigger price will not be adjusted and will remain the same. And, if the price falls, the trigger price will be adjusted and if it again starts increasing, the buy market order will be placed. Here the asset will be purchased at the best possible price.

Let’s understand this with an example:

Suppose, a trader wants to buy ETH, but you think that it will fall in value soon. Now you can’t wait to buy it at the best possible price. You also think that if the price of ETH moves up by a defined amount (let’s say 10%) it may go even higher.

So, in that case, to help minimize potential costs, you set the trail to 10%. Here the stop price will always remain 10% above ETH’s lowest price.

ETH is currently trading at $100 per coin. Your stop price will start at $110, which is 10% higher than the current price of ETH.

·         If ETH stays between $100 and $110, the stop price will stay at $110.

·         If ETH falls to $90, the stop price will update to $99, which is 10% above than the new lowest price.

·         If ETH rises to the stop price $99 or higher, it will trigger buy market order. Here the ETH will be purchased at the best price currently available.

There are numerous benefits of using trailing stop orders in crypto trading. These orders provide an excellent way to manage risks in crypto trading and along with this, they work automatically without having to watch the market trends continuously.

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Created on Feb 1st 2023 11:32. Viewed 125 times.

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