Trailing Stop Orders in Crypto Trading and Their Benefits

When market conditions can change in the blink of an eye, you’re constantly on the lookout for tools that can help you manage risk and secure profits. One such tool that has gained popularity among crypto traders is the Trailing Stop order. This advanced order type offers a strategic blend of flexibility and control, allowing traders to stay on top of their game without having to constantly monitor the market.

Learn more about Trailing Stop Orders, how they work, and their benefits.

What Are Trailing Stop Orders

Trailing Stop orders are dynamic trading tools designed to protect profits and limit losses. This can be done since these orders automatically adjust the stop price as the market price moves in a favorable direction. 

Unlike traditional stop orders, which have a fixed stop price, Trailing Stop orders trail the market price at a specified distance. This means that if a cryptocurrency’s price increases, the Trailing Stop will rise accordingly, locking in potential profits. Conversely, if the market price falls, the Trailing Stop stays in place, protecting you from larger losses.

In essence, Trailing Stop orders allow you to lock in gains while also making room for potential upside.

How Do Trailing Stop Orders Work?

Let's break down the mechanics of trailing stop orders with a practical example:

Suppose you buy 1 BTC at $50,000 and set a trailing stop order with a trail distance of 5%.

Initially, your stop price is set at $47,500 (5% below your purchase price).

If the market price of BTC increases to $60,000, your stop price will automatically adjust to $57,000 (5% below the highest market price).

However, if the market price starts to decline, the stop price remains unchanged, allowing you to lock in profits if the price retraces but triggering a sell order if it drops by the specified trail distance.

Benefits of Trailing Stop Orders

Get more flexibility in your strategy

Trailing Stop orders provide a dynamic approach to risk management. They allow you to set a maximum loss you’re willing to accept, while also giving you the flexibility to adjust to market movements and potentially increase your profits without manual intervention.

Easy profit protection

Trailing Stop orders allow you to secure profits by automatically adjusting the stop price in line with market movements; as the market price climbs, the trailing stop follows, ensuring that gains aren’t lost if the market suddenly reverses. This reduces the risk of giving back gains during price fluctuations.

Emotion-free execution

Trailing Stop orders remove the emotional component from trading decisions, as they’re executed automatically based on predefined parameters, preventing impulsive actions driven by fear or greed. These orders also help you adhere to your trading strategies and stick to your exit plans.

Reduce your losses

By trailing the market price at a predetermined distance, Trailing Stop orders help mitigate potential losses by triggering a sell order if the price deviates unfavorably. This helps you preserve your capital and capitalize on trends.

Strategies for Using Trailing Stop Orders

Traders can employ Trailing Stop orders in various ways, depending on their trading style and objectives. Some may use them to enter a position, setting the order to buy when a downtrend reverses. 

Others might use them to exit a position, selling after an uptrend appears to run out of steam.  In a long position, you can set a Trailing Stop loss below the current market price, while in a short position, you can place the Trailing Stop above the current market price.

The key is to find the optimal trailing distance that balances response to market conditions and price volatility.

Practical Examples

• Bitcoin (BTC) Trade

Suppose you buy 2 BTC at $55,000 and set a trailing stop order with a trail distance of 7%. As the price of BTC climbs to $65,000, your Trailing Stop order adjusts accordingly, locking in profits while allowing you to capitalize on further upside potential.

• Ethereum (ETH) Trade

You purchase 5 ETH at $3,000 and set a trailing stop order with a trail distance of 8%. If the price of ETH surges to $4,000, your Trailing Stop order adapts, safeguarding your gains in case of a market reversal

How to Use Altrady’s Trailing Stop Orders

With Altrady, you can use two types of Trailing Stop orders: 

• the Limit Trailing Stop – an entry order to secure optimal buy or sell prices
• the Limit Trailing Stop – an exit strategy for owned coins (also known as Trailing Take Profit), enhancing Take Profit opportunities

Incorporating Altrady’s Trailing Stop order involves configuring three key parameters:

1. the Trigger Price, which initiates trailing; this can be set as the Current Price for immediate activation.
2. the Stop Percentage, determining the extent of price retracement before order execution; any deviations below this percentage won't activate the order, while those exceeding it will.
3. the Limit Percentage, allowing flexibility in order fulfillment; this parameter influences the calculation of the Limit Price upon order placement.

Conclusion

Trailing Stop orders are invaluable tools for crypto traders seeking to manage risks and optimize profits in volatile markets. Automatically adjusting stop prices based on market movements, Trailing Stop orders provide a disciplined approach to trading while allowing you to capitalize on favorable trends. 

Incorporate trailing stop orders into your trading strategy and you’ll enhance your overall performance and trading strategies.