Master the trailing stop to optimize your trading positions

The trailing stop, also known as a dynamic stop order, is a strategic tool that allows you to maximize gains while limiting losses on open positions. This advanced order automatically follows market movements and triggers at a predefined level. Its main advantage lies in its ability to adjust protection based on price movements, especially useful when you cannot monitor your positions in real time.

What is a dynamic trailing stop order?

The dynamic stop system is based on a simple but effective principle: instead of setting a static exit point, this order “moves up” automatically with the market price. You simply define a safety margin, and the system takes care of the rest. This margin can be configured in two ways: as a percentage of the current price or as a fixed amount.

The order remains inactive until an activation condition is met. From that point, it begins to follow the market’s progression, ready to trigger as soon as the price drops by the agreed margin.

Two approaches to adapt your protection

Protection as a percentage of the price

Imagine a scenario where the current price is $100. You decide to automatically sell your assets if the price drops 10% from its recent high.

Here’s how the order would evolve in different situations:

Simple downward movement: If the price drops directly from $100 to $90, your stop order triggers immediately, executing a market sale.

Progression followed by a slight correction: Suppose the price rises to $150, then drops 7% to $140. Your order does not trigger at this point because it waits for a 10% decline from the new peak ($150 - 10% = $135).

More pronounced rally: If the price reaches $200 before correcting by 10% and falling to $180, your order activates and converts your position into a market sell order at the current price ($180).

Protection with a fixed margin

Now consider a margin set at a constant amount of $30 below the market price, always starting from an initial price of $100.

Immediate decline: If the price drops to $70 ($30 below $100), your stop order triggers the sale automatically.

Moderate rise followed by a correction: The price rises to $150, then drops $20 to $130. Your order does not trigger because the trigger threshold is now set at $120 ($150 - $30).

Strong appreciation then retreat: If the price rises to $200, then drops $30 to $170, your order activates and executes the sale at that level ($170).

Important points to consider

Locking your resources: From the moment you set the stop order until it is triggered, your positions and margin remain locked. Ensure you have sufficient resources to cover this immobilization.

Execution conditions: A dynamic stop order may not trigger for several reasons: price or position limitations, insufficient margin, non-trading account status, or technical issues. Once triggered, if the market has moved too far from the activation price, the market sell order may not be fully executed, similar to any regular order. Check your “Open Orders” section to monitor unfilled orders.

Practical advantages: Unlike a classic stop, this order evolves with your profit position, gradually locking in gains while limiting exposure to sudden market reversals.

Disclaimer

This content is provided for informational and educational purposes only. It does not constitute investment advice, a buy or sell recommendation, or financial, legal, or tax advice. Investing in digital assets and cryptocurrencies carries a high risk of volatility and capital loss. Before engaging in trading or holding digital assets, carefully assess your financial situation and consult a qualified expert in your jurisdiction. The information and data presented here are for general informational purposes only, without any guarantee of accuracy or completeness.