Why Choose You Add Trailing Stop Orders in Your Crypto Trading Strategy?

by Antonio Boston marketing manager

Determining 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 tools 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 platform to make your strategy successful. Considering TrailingCrypto’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 Mar 3rd 2022 23:26. Viewed 325 times.

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