Automated Crypto Trading
A Trailing stop loss is a special type of market order used for risk and trade management. The popular stop-loss order features two components. The first feature is used to trail price as it moves either up or down. The second feature closes down a position when price moves against a trader by a set percentage point or dollar amount.
Stop-loss orders that track price as it moves from one level to another prove are highly effective as they allow traders to remain in the market as price moves in their favor. Likewise, they enable traders to lock in maximum profits on every position opened. Brokers, as well as trading bots such as TrailingCrypto, offer such types of stop-loss orders, making it easy for traders and robots to lock in profits and minimize losses on positions. Likewise, these types of stop-loss orders alleviate the need to continually reset an order as part of trade and risk management. How Trailing Stop Loss Orders Work Unlike normal stop-loss orders that remain fixed at a given price level, trailing stop loss moves and tacks underlying price. For instance, when a trader opens a long position, the trailing stop buy order will trail price as it moves up and only stop trailing as soon as price reverses and starts to move lower. A long position is closed down as soon as the price moves lower by a set percentage or dollar amount. In the case of a short position, the stop-loss order will trail the price as it moves lower and only stop trailing price as soon as price reverses and starts moving higher. Likewise, the order will close down a position as soon as price reverses and moves higher by a given percentage point or dollar amount from the current price. Example Consider stock XYZ trading at $25 a share with the potential of trading higher on a positive financial report. A trader opens a long position and triggers a trailing stop buy order with a trailing amount of $2. At the start, the trailing stop buy order whose role is to mitigate against any downside action would be set at the $23 price point. As soon as price moves higher, say to $27, the trailing stop will also adjust itself by moving higher, as well, and setting itself at $25 level. Price rising to $30 price level will also see the trailing stop order adjusting itself at $28 level. However, as soon as price reverses and starts moving lower, the stop-loss order remains fixed at the recent price point. For instance, price moving from $30 to $29 will result in the buy stop-loss order remaining set at the $28 price point. As soon as the price drops to the $28 level, the stop-loss order will close the position. In this case, the trade will lock in a maximum of $3 in profit on each share bought ($28-$25). In case of a normal stop-loss order, the trader would have incurred a loss of $2, on price dropping to the $23 price level. Conclusion Trailing stop loss is a risk and trade management order that ensures losses are kept at a bare minimum while locking in maximum profits. The market order can be used to mitigate against any downside movement in case of a long position and against any upwards movement in case of a short position.
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