Many people enter the exchange without knowing its functionality, this is what distinguishes an experienced trader from a beginner.
💡 A trailing stop is a tool that helps you automatically lock in profits as the price of an asset rises, without locking it in at a specific level, but following the price movement. Here's how it works:
1️⃣ Setting a trailing stop: You set a percentage or a fixed amount of deviation that the price can fall after rising. This value is called a “trailing offset”.
2️⃣ How it works: If you have opened a long (buy) position, the trailing stop moves up when the asset price rises, remaining at a set distance from the current price. For example, if the offset is set to 5%, the trailing stop will always be 5% below the highest price reached by the asset.
3️⃣ Stop trigger: If the price starts to fall and reaches the set trailing stop level (in our example, it falls 5% from the maximum), the position is automatically closed. This allows you to lock in profits without having to manually track every price change.
4️⃣ For short positions: In the case of a short (sell) position, the trailing stop works in reverse, following the price drop and locking in profit if the price starts to rise by a set distance.
📊 Example of how a trailing stop works:
Let's say you bought an asset at $100 and set a trailing stop at 5%. If the price rises to $110, the trailing stop moves up to $104.5 (5% below the high). If the price falls to $104.5, the position is closed, locking in your profit. If the price continues to rise, the trailing stop also moves up, maintaining a distance of 5% from the highest price.
💡 Trailing stop is a tool for protecting profits when you don’t want to track every price change manually.