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What Is a Trailing Stoploss?

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2022-10-14
What Is a Trailing Stoploss?

With the newly introduced Trailing Stop loss functionality here on Bitget, this article dives into the subject matter of what it is, how it works, and how it can benefit your trading! But before you do, learn more about the individual order types here first!

What is a Trailing Stop Loss?

A trailing stop loss is a kind of order that is intended to help you lock in profits while protecting you from taking losses. It is a somewhat automated order that “trails” your stop loss up or down as the trade runs in your favor based on a few basic parameters.

How a Trailing Stop Loss works

A trailing stop loss order is initially placed in the same manner as a regular stop loss order. For example, a trailing stop for a long trade (selling an asset you have) would be a sell order and would be placed at a price below the trade entry point. The main difference between a regular stop loss and a trailing stop loss is that the trailing one moves whenever the price moves in your favor

For example, for every 1% that the price moves up, the trailing stop would also move up 1%. If the price were to move up 2%, the stop loss would also move up 2%. But if the price were to start to fall, the stop loss wouldn't move.

How to place a trailing stop loss

Setting up a trailing stop loss mechanism can be done either by clicking on the button in your position window (fig 1), or at the trading terminal (fig 2.). In both cases, one must have a position open first before being able to set up a trailing stop loss successfully.

What Is a Trailing Stoploss? image 0

Fig 1

What Is a Trailing Stoploss? image 1

Fig 2

The trigger price sets the price where the trailing stop loss will be getting triggered. The callback rate is the % amount you wish your stop loss to trail and after which % of price increase or decrease the stop loss should update itself. You can also let only a part of your position be trailed by a trailing stop loss. In this way, the stop loss realistically functions as a take-profit order.

Tip! First set up a manual stop loss, and then set up a trailing stop. Once the trailing stop is triggered you can either remove or keep the original stoploss activated as an extra failsafe mechanism, in the rare event that extreme volatility does not trigger the trailing stop order.

The pros and cons

One thing to be aware of about trailing stop-loss orders is that they can get you out of a trade too soon, such as when the price is only pulling back a bit, not actually reversing. To try to prevent that scenario, trailing stops should be placed at a distance from the current price that you do not expect to be reached unless the market changes its direction.

Depending on your trading strategy and analysis skills, a trailing stop loss might not be the one-stop solution. If your stop-loss strategy is based on technical analysis, for example, a stop-loss that trails on a specific parameter such as a percentage gap, you might find your stop-loss in a place that does not respect your own analysis. On the other hand, if you don't have much time to actively monitor and manage your trade, and if you have a more lenient trading strategy, then this is an ideal way to let your trade run its course while ensuring to lock in profits along the way.

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Disclaimer:

The information provided above is not financial advice but for educational and entertainment purposes. Please do your own due diligence or consult a financial advisor before investing in any digital assets.

All opinions expressed on Bitget’s Soapbox (also known as the ‘Soapbox’) are opinions of individual traders using the Bitget platform, and do not reflect the opinions of Bitget or its affiliate companies and partners. The Soapbox author’s opinions are based upon information they confirm to be reliable, but neither Bitget nor its affiliates warrant its complete accuracy, and it should not be relied upon as such.

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