Trailing stop
Also called: trailing stop-loss · trailing stop order
Definition
A trailing stop is a stop order that automatically follows the price at a set distance as it moves in your favour, then triggers if the price reverses by that distance.
How trailing stop works
You set a callback rate, such as 5 percent, or a fixed price distance. For a long position, the stop rises as the price makes new highs but never moves down. If the price then falls 5 percent from its highest point since activation, the order triggers and closes the position, usually with a market order.
Trailing stops let you protect profits in a trend without guessing the top. They work best in strong directional moves. In choppy markets, a tight trailing distance can stop you out on normal swings before the trend continues.
Many exchanges let you set an activation price, so the trailing only starts once the trade is already in profit. Settings vary between platforms, for example whether the callback uses last price or mark price, so read the order details on your exchange before relying on it.
Example
Suppose you buy a coin at 40 USDT and set a trailing stop with a 10 percent callback. The price climbs to 50, so the stop moves up to 45. It then rises to 56, moving the stop to 50.40. The price then drops, and when it reaches 50.40 the order triggers. You exit with a gain of about 10.40 USDT per coin, roughly 26 percent, even though you did not sell at the 56 top.
Common mistakes
- Setting a callback rate smaller than the coin's normal daily swings.
- Expecting the trailing stop to move down again if the price falls; it only ratchets in your favour.
- Not checking whether the order triggers on last price or mark price on futures.
Learn and practise
FAQ
What is a good trailing stop percentage?
It should be wider than the coin's normal pullbacks. Large coins may suit a few percent, while volatile altcoins may need 10 percent or more.
Does a trailing stop guarantee my exit price?
No. It usually triggers a market order, so the fill can be slightly worse than the trigger in fast markets.
What is an activation price in a trailing stop?
It is the price at which the trailing begins. Before that price is reached, the order is inactive.