A Trailing Stop is a great way to lock in profits when price moves in your favor. Whether you’re a newcomer to the cryptosphere or an experienced investor, you’ll likely want to explore trailing stop orders. They’re an easy and efficient way to take advantage of favorable market conditions. However, they also carry risks. Before you start trading with a trailing stop, be sure you understand how to use one and are aware of some of the more common misconceptions.
The most basic functionality of a trailing stop order is to automatically track the current price. When the price crosses a certain trigger price, the order is triggered. This can be either a mark price or a last price. You can also configure the order to either trigger a profit or loss percentage. Once the order is triggered, the trailing stop will move by a specified amount.
For instance, a Binance trailing stop might be configured to trigger a 1% deviation from the average of the last 3 days of trading. This means that if the price of the asset you’re trading has been trending upwards, the trailing stop will start moving upwards if and when it crosses a particular price. If it starts to trend downwards, the trailing stop will start moving downwards.
Another option is to use a callback rate to set the maximum amount that the stop price will increase. A callback rate is a percentage of the difference between the current market price and the activation price. It can be anywhere from 0.1% to 5%, but a higher callback rate is better during volatile periods.
Activating a trailing stop will allow you to enter and exit the market at a fixed price. Using a trailing stop can be beneficial in both long and short positions. For instance, you might have a long position on BTC/USD. You could decide to sell 50% of your position to lock in a profit and continue riding the market trend. Alternatively, you might prefer to hold the remaining 50% for the long-term. As the price rises, you could also consider a stop buy to lock in the rest of your profits.
Unlike other types of orders, a trailing stop is designed to be active only during regular market sessions. That means you can’t use it if the stock is not open for trading. In addition, the trailing stop’s ability to move in a specific direction is limited.
Trailing stop orders can be manually entered or pre-set. The most important thing to remember is to choose a trigger price that is greater than the current market value of the asset you’re buying or selling. Generally, you’ll want to avoid setting a too-high callback rate or trailing stop activation price, as this may cause the stop to miss the most important market conditions.
While the trailing stop does have its pros and cons, it is an excellent option for investors looking to lock in their profits. It’s also a good way to limit losses.
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