Trailing Stop Loss Order- The Best Order Type Leading to Winning Trades

Trailing Stop Loss Order- The Best Order Type Leading to Winning Trades Manage your risks and protect your gains with Trailing Stop Loss orders Expert crypto traders constantly look for ways to limit their losses and one of the most common exit strategies that they use is stop-loss orders. In this order type, if a share price dips to a certain level, the position will be sold automatically at the current market price to stop further losses. Pairing this order type with trailing stop order will further enhance its efficacy.

When to take out profits and when to cut losses is one of the most important and toughest decisions that a trader has to make. Some traders sell the asset as soon as its price increases while there are some who continue to hold onto their asset till the trend reverses. But this could be one of the biggest mistakes which they can make while trading.

So, how can they prevent themselves from making this mistake?

And, the answer to this question is, placing trailing stop loss orders.

Trailing stop loss These orders are similar to the traditional stop-loss order, but rather than remaining at the specific price level, the trailing stop-loss follows behind the price whenever it is moving in a favorable direction. This is the best risk management tool which helps traders to lock in potential profits.

Trailing stop orders are also termed as trailing stop loss orders which is termed as a type of market order that sets stop-loss at a specific percentage below the asset’s market price rather than on a single value. As the price of the asset moves, the stoploss price trails behind it. The traders can either set up these orders automatically by trading software or trading bots provided by third party platforms or manually by traders.

How does trailing stop loss order works?

This order is first placed by using the same technique as the stop-loss orders. If you want to place a trailing stop for a long trade would be the sell order and would be placed at a price that was below the trade entry. The main different between stop loss order and trailing stop loss is that the trailing order moves as the price moves in your favor.

Let’s understand this with an example: Let’s say Mr. Tom buys 200 coins of ABC at $50 each. He places a trailing stop loss order for 10% so that if the market price of these coins drops below 10% i.e. $5, they will be sold out automatically. Even though Mr. Tom expects the price of coins for ABC to rise, some unfavorable conditions might lead to the opposite of this. In that case, using trailing stop loss order would allow him to limit his losses to 10% of his investment. Thus, this order type will protect him from incurring huge losses.

On the other side, if the price increases to $100, the trailing stop loss will be set when the market price falls below 10% (i.e. $90) Let’s understand Trailing stop loss order with another example: Trailing stop loss for long trade Say, you enter a long trade at $50, with a trail of $0.10 trailing stop at $49.90.

If the price moves up to $50.10, the trailing stop value will move to $50. And, at $50.20, it will move to $50.10.

And, if the price of the asset moves back to $50.15, the trailing stop will remain the same which means it will stay at $50.10.

If the price falls continuously and reached $50.10, the trailing stop loss order will be triggered and would be converted into a market order.

Here, you will exit the trade at $50.10, which means that you have protected $0.10 profit for each of your crypto assets.

Trailing stop loss for a short trade

The trailing stop loss orders for a short trade are similar to as for the long trade except that you are expecting the cryptocurrency price to drop further, so the trailing stop-loss feature will be placed above the entry price.

Let’s say you are entering a short trade by selling the crypto asset at $50 per coin. With a trail set at $0.10 trailing stop loss, you would be stopped out with a %0.10 loss if the price moves up to $50.10.

If the price of the asset drops down to $49.80, the stop loss will drop to $49.90. And, if the price increases to $39.85, the stop loss price will remain the same at $49.90.

And, if the price reaches down to $49.70, the stop loss will fall to $49.80. And, if the price increases to $49.80 or higher, then this order will be converted into a market order and you will exit the trade with a gain of $20 per share.

So, placing a trailing stop loss order in both ways will be beneficial for the traders. This is one of the best and most useful tools to protect your profits as well as help them to continue earning profits at a more meaningful level.

Conclusion Trailing stop loss order is a kind of stop loss order which combines both risk management and trade management. These orders work automatically on the thirdparty crypto trading platforms like TrailingCrypto by making use of bots and trading software. A trailing stop loss order can be an efficacious tool when it’s used very smartly and technically. But it’s quite important for the traders to understand the market conditions before placing this order.

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