What is Trailing Stop and How to Use It
In trading, the traders often use order for smooth trading . Order yourself can help traders in bagging Cuan . One of the orders that is often used to secure profits is the Trailing Stop which is part of the Stop Loss.
Well, before understanding what Trailing Stop is like , let’s first discuss a little about Stop Loss !
What is Stop Loss?
Stop Loss is an order to close a trading position , which is usually provided by a crypto trading platform . The point is to mark the lower limit of the price targeted by the trader , so that if the price drops drastically, the trader can still be saved from losses with the specified limit.
Then, what makes a Trailing Stop different from a Stop Loss? Come on, see more information about Trailing Stop !
What is Trailing Stop ?
As discussed earlier, Trailing Stop is one type of Stop Loss in trading, which is useful for minimizing losses that will be faced by traders . Because with Trailing Stops, setting the lower price limit is more flexible and can be adjusted according to market price movements. This is what distinguishes a Trailing Stop from an ordinary Stop Loss whose maximum level is fixed .
In Trailing Stop, there is a value called Trailing Distance. This Trailing Distance is the difference between the current market price and the maximum value or price set by the trader to buy/sell . After being set by the trader , later this value will move along, according to the direction of price movement when in a buy or sell position .
How to Use Trailing Stop in Trading
Actually, how to use Trailing Stops depends on the automate trading platform you are using. However, in general , Trailing Stops can be used in two situations, namely:
1. When Buy
When placed in a buy position, the Trailing Stop order will automatically follow the price of the asset in the market when the price starts to increase. So, when the current market price increases with a value equal to the Trailing Distance predetermined, traders do buy .
2. When Sell
At the time of a short position, the order will follow the market price when it starts to decline. The reason is, Trailing Stops will be useful in limiting the losses that traders will get if the price continues to decline. When the current market price decreases and is worth a number of Trailing Distances , traders will automatically lock in profits at that number by selling . The traders generally put Trailing Stop on short positions.
Examples of the Use of Trailing Stops in Trading
Examples of Trailing Stop Usage
For example, a trader places a Trailing Stop in a short position with a Trailing Distance of 10. The market price at the time of the Trailing Stop is 1000, so with the basic Stop Loss calculation , as soon as the price reaches 990, the asset will be automatically sold.
It is different if the current market price is between 990 to 1000 when the Trailing Stop is installed , with the same Trailing Distance of 10. As long as the price continues to fluctuate, the Trailing Stop will remain at 990 and will not move up or down.
Then, if the price increases to 1010, Trailing Stop will move and move to 1000 to still have a difference of Trailing Distance . Then, when it turns out that the price continues to rise until it reaches 1020, Trailing Stop will also follow and stop at 1010. This happens next when there is an increase in the market.
This is what it says that Trailing Stops in short positions will continue to follow the price movement when it goes up, and will not move when it goes down. However, while the current market price is almost touching the Trailing Distance , sales are automatically made to minimize trader losses . And the opposite will happen if the trader puts in a long position .
Advantages of Trailing Stop
As a modification of Stop Loss , Trailing Stop certainly has several advantages that traders can take advantage of , including:
1. Suitable for Day Trading
The first advantage of the Trailing Stop is that it is suitable for day trading , because the trader can limit the amount of loss he will receive when trading . So, traders will not be too surprised if the market price goes down, because the loss value is predetermined and will only move when the market price goes up.
2. Can Avoid Big Losses
Like the example described earlier, Trailing Stops can help traders avoid big losses. Because, as soon as a Trailing Stop sell position is placed and the market price approaches the Trailing Distance that has been set, the asset will be automatically sold and the profit is locked.
3. No Need to Be Monitored 24/7
Related to the previous point, because the price limit will follow the movement in the market, aka not fixed at one particular value. So, traders no longer need to monitor trading 24/7 because it will always be updated automatically following price conditions in the market.
Now, you already know, right , what kind of a Trailing Stop is an order ? Although it seems easy, it requires a deep understanding of how to use it. In addition, Trailing Stops must also be accompanied by technical analysis, yes , so that your trading strategy can still go according to plan. For more information on crypto trading , visit Tokonews and start investing in crypto assets at Tokocrypto !