The Trailing Stop order is a flexible and effective tool known to many investors. It is widely used in the foreign exchange market. However, not everyone clearly understands how this command works. Let’s learn about the concept and strategy of Trailing Stops with Crypto Trading .
What are Trailing Stops?
Trailing Stops work by automatically adjusting the stop loss level. It is oriented in the favorable direction of the market price. Increase in case of a long position or decrease in case of a short position. The stop loss also moves accordingly. However, if the price reverses. Trailing Stops orders keep the set stop loss intact, helping to lock in profits or limit losses.
What is the concept of Trailing Stops?
Trailing Stops are an important tool in cryptocurrency trading. The goal is to help traders minimize the risk of losses and protect profits. Instead of setting a fixed stop loss, users can place Trailing Stops orders. The condition is consistent with a percentage compared to the current market price. As the price increases, the stop loss also moves to protect profits. This allows users to lock in profits when the market moves in its favor. Furthermore, you don’t need to monitor constantly.
When the market price increases, the Trailing Stop order will automatically adjust. The goal is to maintain a certain percentage or amount relative to the market price. This helps traders maintain their positions and continue to profit. Especially while prices continue to fluctuate in a favorable direction.
If the market pricing strategy moves against the established percentage, Trailing Stops will automatically close the trade at the current market price. This helps limit losses and protect profits by closing the trade. In the case when the price reverses and is no longer beneficial to the trader.
Why were Trailing Stops born?
Here are some reasons why Trailing Stop orders were created:
- Determining the correct time to exit a trade is a key factor. They help achieve trading success, whether you are a short-term or long-term trader.
- Deciding to exit a trade is often more difficult than entering a trade. For example, when an order is highly profitable. Making the decision to exit a trade can be difficult. This is because you see there is still an opportunity to make more profits or want to expand your profit margin.
- Especially when faced with losses, the mentality of “holding an order hoping the price will reverse. The goal is to make a profit” can make it difficult to make the decision to cut an order.
You need to practice patience and the ability to control your emotions. To prevent emotions from influencing trading decisions, the Trailing Stop order was developed. This tool helps you track and adjust your profit levels. At least until the price turns in the opposite direction and triggers a new Stop order.
In short, the Trailing Stop order helps you determine the optimal time to exit a trade. They protect profits and minimize the risk of unwanted losses.
See more: Technical analysis: secret trade to increase profits
Benefits of Trailing Stops in Crypto Trading
Trailing Stops Buy:
- When the market is trending down, the Trailing Stop Buy order helps you buy at the lowest point in the expected price range.
- This order is ideal for opening a Buy position with the goal of catching the bottom. Or to close an existing Sell position at the lowest price to maximize profits.
Trailing Stops Sell:
- During an uptrend, the Trailing Stop Sell order helps you sell at the highest point within the expected range.
- This method is ideal for opening a short position when the price is expected to peak. Or close the current buying position at the highest possible price to optimize profits.
How do Trailing Stops work?
As a trader, you can apply a Trailing Stop order in both situations. That is when opening a new position and when there is already an existing position.
When initiating a Long trade, you can place a Trailing Stop order to sell at the initial price as the starting point. This command will move up by percentage. Or they follow a fixed amount when the market price increases. It is important that the order tracks the movement of the market price in your favor. This means that the price of Trailing Stops will continuously be adjusted upward as the market price increases. They create a new level of Trailing Stops.
They will be triggered when the market price drops below the price of the Trailing Stops. The sell order will be executed at the current market price and the transaction will be closed.
If you have previously opened a Long position, you can place a Trailing Stops order to sell below the current market price. This order will move up when the market price increases. They are similar to when you first opened the position. However, if the market price falls below the price of the Trailing Stop. The sell order will be activated and the trade will be closed at the current market price.
In Short trading, when opening a position, place a Trailing Stop order to buy below the current market price. This Trailing Stop price will adjust downward by a percentage. Or they follow a fixed amount when the market price falls. This order will monitor the market price as the market moves in your favor. If the market price increases beyond the Trailing Stop price.
What is the investment strategy with Trailing Stops
The investment strategy with Trailing Stop is a method of risk management and profit optimization. The strategy automatically adjusts stop loss levels based on market price fluctuations.
Trailing Stops are at a tolerable risk level in Crypto trading
You need to determine the acceptable level of risk (R) and set Trailing Stop milestones. For example, 1R, 2R,…, nR. This is the simplest way to use the Trailing Stop order.
– With highly volatile markets, you can consider setting a Trailing Stop of 2R or higher.
– Meanwhile, with low-volatility markets, you should set a Trailing Stop at the breakeven level of 1R. This method helps you maximize profits before the market goes into a strong downtrend.
See more: OKX: open an OKX account – Reputable crypto exchange
PSAR Trailing Stops
In this strategy, you will apply Parabolic SAR (PSAR) to set a Trailing Stop order. Specifically, when the candlestick chart almost reaches the PSAR point. That’s when you should place a Trailing Stop order at the nearest PSAR level. This is a sign that a reversal is about to happen. You can consider taking profit at the highest level.
Trailing Stops at level X – candles in Crypto trading
With this strategy, you will rely on the highest and lowest prices of the previous candles.
Place an order at the highest point of these 3 candles. On the contrary, if you want to open a buy position, place an order at the lowest point of those 3 candles.
What are Trailing Stops support and resistance positions?
You use support and resistance lines to identify tops and bottoms within a trend. If you are not sure about which is the top and which is the bottom. You can place a Trailing Stop order according to the price at the support or resistance level.
Technical analysis at moving average position
Traders use the Trailing Stop Order in conjunction with a technical indicator called a moving average. The most popular MA lines are MA20 and SMA 20.
You can adjust the period of the moving average to suit.
Notes when using Trailing Stops order
- Don’t set your stop loss too tight or too wide
Don’t set your stop loss too tight or too wide as a rule when using Trailing Stop orders. Setting your stop loss too tight can result in it being triggered too often. Caused by small price fluctuations. They make it difficult to move the trade in the direction the trader wants. Especially for assets with strong fluctuations.
Setting a stop loss that is too tight often results in losses, even on small trades. Vice versa, if the stop loss is too wide. It may not be triggered due to normal market fluctuations. This can lead to unnecessary risks of large losses. Read more about scalping strategie to gain optimal profits in a short period of time.
- Trailing Stop Order stops when the user turns off MT4, MT5
Trailing Stop orders are executed through trader intervention. Not a static order installed on the server like Stop Loss or Take Profit. Therefore, for the Trailing Stop Order to work, you must keep the MT4 software active. When MT4 is turned off, the Trailing Stop order will stop working. However, the Stop Loss level will be recorded at the time you close MT4. After reopening MT4, the Trailing Stop order will continue to work.
Epilogue
A trailing Stop is an important tool in cryptocurrency trading. They help minimize the risk of losses and protect profits in volatile market conditions. Users can place Trailing Stop orders at a percentage of the current market price. As the price increases, the stop loss also moves to protect profits. They allow you to lock in profits without constant monitoring. That’s what Crypto Trading wants to offer you about Trailing Stops. Stay tuned for more useful information about stocks on Crypto Trading
Trailing Stops FAQ
How to set and adjust Trailing Stop?
To set a Trailing Stop, the trader needs to determine a distance or percentage from the current market price. This order automatically adjusts when the price moves in a favorable direction. Adjustments are made through the trading platform or trading software the user is using.
How do Trailing Stops work in highly volatile markets?
Trailing Stop can help prevent short-term fluctuations in highly volatile markets by automatically adjusting the stop loss according to the market price. This helps protect profits and minimize the risk of losses when the market fluctuates strongly.
What are the notes to remember when using Trailing Stop?
The Trailing Stop level should not be set too tight as it can lead to being triggered too often due to small price fluctuations. At the same time, it is also necessary to avoid placing too widely so as not to miss the opportunity to lock in profits. The Trailing Stop level should be determined based on the acceptable level of risk and current market conditions.
