Trailing Stop: A tool for protecting positions and increasing profits

When you open a position in the cryptocurrency market, the main challenge is balancing between maximizing profit and minimizing risks. Trailing stop is one of the solutions that allows automating this process. It is an advanced type of stop order that tracks price movement in your favor, automatically shifting the trigger point above ( for sell positions ) or below ( for buy positions ) the current market price.

How a trailing stop differs from a regular stop-loss

The main difference is that a regular stop-loss has a fixed trigger point, while a trailing stop is a tool that “follows” the price. If the price moves in your favor, the trigger point moves with it, maintaining the set distance. This is especially useful when you cannot constantly monitor the market or are unsure how far the price might move.

There are two main configuration options: percentage trailing stop (trigger activates when the price deviates by a certain percentage from the maximum/minimum) and fixed trailing stop (trigger activates when the price deviates by a specific amount, for example $30 from the maximum). You can also set an activation price that determines when tracking begins.

Practical scenario: percentage trailing stop for selling

Imagine the current asset price is $100, and you set a trailing stop to sell with a 10% below the market price parameter.

Scenario 1: Price drops 10% to $90 → order triggers and you exit the position at $90.

Scenario 2: Price rises to $150, then drops 7% to $140 → order does NOT trigger because the trigger point is now at $135 (10% below $150). It will trigger only if the price falls further.

Scenario 3: Price rises to $200, then drops 10% to $180 → order triggers, you exit at $180, locking in profit well above the initial entry price.

Fixed trailing stop: a set difference in absolute value

If you prefer working with specific amounts, a fixed trailing stop is a tool that triggers when the price deviates by a fixed amount.

Suppose the asset price is $100, and you set a fixed trailing stop $30 below the market$30 .

Scenario 1: Price drops to $70 → order triggers.

Scenario 2: Price rises to $150, then drops to $20 → order does NOT trigger. The trigger is at $130 $120 below the maximum of $150(.

Scenario 3: Price rises to $200, then drops to $30 → order triggers, and you close with a good profit.

Main advantages of a trailing stop

Lock in profit with additional potential. The tool not only protects your position but can potentially capture a larger part of the upward movement. By choosing the trigger point correctly, you can maximize income while protecting against reversals.

Adaptability to market conditions. A trailing stop works in both rising and falling markets, helping manage risks regardless of the price direction.

Elimination of emotional factors. Cryptocurrency markets are known for high volatility. Automated order execution spares you from making emotional decisions at critical moments.

Convenience for busy traders. After analyzing and opening a position, exchange bots can close it automatically according to set parameters. This is especially valuable during high volatility when constant monitoring is impossible.

Full customization. You choose all parameters based on your risk tolerance and overall trading strategy.

When a trailing stop is not the optimal choice

Slippage risk. During sharp price fluctuations, the order may be executed at a price significantly different from the expected one. This is especially relevant during periods of low liquidity.

Incompatibility with long-term strategies. Investors prepared for significant price swings and who prefer to hold positions for a long time may find frequent triggers disruptive.

Ineffectiveness in sideways markets. When the price moves within a range without a clear trend, a trailing stop may trigger on every small dip, preventing you from capturing larger profits.

Lag behind the market price. In rare cases, the order may trigger with some delay, leading to a less favorable execution price.

Risk of multiple losses. Sharp zigzag movements around the trigger point can cause multiple triggers and accumulate losses.

Key rules for use

• Your position and margin will not be blocked until the trailing stop triggers. Ensure you have enough margin to maintain the position.

• A trailing stop may not trigger for various reasons: price limits, position size restrictions, insufficient margin, lack of trading access, or system failures.

• After activation, the trailing stop converts into a market order, which may not be fully executed, like any other market order. Unfilled orders can be tracked in the Open Orders section.

How to choose the right parameters

Selecting the optimal percentage or amount depends on several factors:

• Your risk tolerance. If conservative, set a more “loose” trailing stop )larger percentage$30 . If willing to take risks, a smaller percentage can be used.

• Asset volatility. Highly volatile assets have larger natural price swings, so set the trigger further from the current price to avoid false triggers.

• Historical price movements. Study charts and determine the typical size of corrections for the chosen asset over your preferred timeframe. This will help set the trigger at an optimal level.

Summary

A trailing stop is an effective tool for traders who want to maximize profits from favorable price movements without constantly monitoring their position. Like a regular stop-loss, it minimizes losses, but its adaptive trigger point allows you to gain more if the market moves in your favor.

Yes, the tool has disadvantages—slippage risk, ineffectiveness in sideways markets, potential lag behind the price. But with proper setup and application in suitable market conditions, a trailing stop is a powerful assistant for automating and optimizing your trading strategy.