Why Choose You Add Trailing Stop Orders in Your Crypto Trading Strategy?
by Thomas Redfield Trading ConsultantDetermining the specific
risk management tool is the most effective part of a successful trading strategy.
Before entering a trade, one must have a firm idea of where to exit the trade.
Exiting the trade at the right time is one of the biggest dilemmas that traders
face every day. But, there is one such tool which one may use to minimize their
risks and maximize their gains.
Yes, it is Trailing Stop!
This is a dynamic exit order which combines risk management with trade
automation. This is an advanced order type which automatically follows your
position as the market advances in your favor, and thus, helping to minimize
the potential losses. Trailing Stop orders are regarded as one of the most
effective crypto trading bot that will allow
you to sell after the uptrend runs out of the stream and buy exactly when the
downtrend reverses.
Trailing
Stop order
A trailing stop order allows
its traders to place a preset order at a specific amount/percentage away from
the market price during price swings.
This order type helps traders to protect gains and limit the losses when
the price of any trade doesn’t move in the trader’s favorable direction.
Let’s have a basic idea
about Trailing Stop order:
This order type has a stop
(order trigger) that follows the market price at a predefined/specified
distance i.e. the trailing distance when the price moves in the chosen
direction. But it remains in place if the price moves in the opposite
direction. If the market price reaches
to the stop price, the underlying limit or market order is placed.
Trailing stop order works in
two ways, either to buy or sell. Let’s understand them one by one:
Trailing
Buy
The Trailing buy order
follows market price as it goes down. It triggers a buy order if or when the
price rises from its low by the amount set as the trailing distance.
Trailing
Sell
This order follows the
market price as it moves up. And, it triggers a sell order if or when the price
falls from its peak by the amount set as the trailing distance.
Trailing stop orders are
considered as a perfect tool to exit and enter your existing positions
including either long or short.
Let’s
review these order types and how Trailing Stop orders work?
Trailing
Stop Sell
For a long trade, the trader
may place a trailing stop sell order above the trade entry. The trailing stop
price here moves up by a trailing percentage. Here a new trailing stop price
will be formed if the price of an asset moves up.
And, if the price moves
down, the trailing stop will stop moving. Now, a sell order will be placed if
the price moves more than the callback rate from the peak price and reaches to
the trailing stop price. Here the trade will be closed with a sell order at the
market price.
Now, let’s move to the
trailing stop buy order which is the opposite of trailing stop sell order.
Trailing
Stop Buy
A trailing buy order is
placed for a short trade below the trade entry. In this order type, the
trailing stop price moves down by a trailing percentage. Here a new trailing
stop price will be formed when the price moves down. And, if the price moves
up, the trailing stop will stop moving and a buy order is issued if the price
moves more than the callback rate from its lowest price, and it reaches the
trailing stop price.
Remember that Trailing Buy Orders
can be used in short positions and trailing sell order can be used in long
positions.
How
does the trailing stop order work?
A trailing stop order is
placed at a predetermined distance away from the entry price and it only begins
trailing if the price of an asset moves in your favor. When the price
increases, it drags trailing stop. And, finally, whenever the price stops
moving further, the trailing stop remains at the same level it was dragged to,
thus protecting the losses of the trader while locking in the profits.
To better understand how it
works, let’s consider a stock with the following data:
·
Buying price = $10
·
Last price at the time of setting trailing
stop = $10.05
·
Trailing amount = 20
·
Immediate effective stop loss value = $9.85
If the price of an asset
moves to $10.98, your trailing stop will rise to $10.78. And, if the price
drops to $10.90, the stop value will remain at $10.78. And, if the price
continuous to drop and reaches to $10.77, it will immediately trigger a market
order. Here your order will be submitted based on the last price of $10.77.
Assuming that the bid price was $10.76, the position would be closed at this
time. Here the net gain of the trader would be $0.76 per share.
Benefits
of using trailing stop orders in your trading strategy
There are numerous benefits
of using Trailing stop buy and sell order in your trading strategy. Firstly,
these orders provide an excellent way to manage the potential risks in the
market. Secondly, they offer a good way
to trade automatically. Here you need to define trailing amount and distance,
and it will help you make money while managing risks.
While trailing stop orders
locks in the profits of traders and limit their losses, setting the ideal
trailing stop distance is tough. There is no ideal distance as the market
prices fluctuate within the seconds. Despite this, trailing stops are the most
effective tools to be used in your crypto trading strategy.
Conclusion
While Trailing stop orders
will generate optimum profits, you need to choose the best
crypto trading bots to make your strategy successful. Considering Growlonix’s
trailing stop strategy will let you lock in the gains and minimize the
potential risks. Make sure to follow the crypto trading signals to place the
most successful trades. This platform supports both advanced and basic order
types. So, get started tracking your favorite market and place the trades at
the industry’s most leading crypto trading terminal.
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Created on Apr 22nd 2024 11:39. Viewed 36 times.