How to Minimize Risks While Earning Profits through Trailing Stop Buy?
by Trailing Crypto cryptocurrency expertsRisk 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 45 times.