Practical Guide to Mastering Trailing Stops in Perpetual and Futures Trading

Perpetual contracts and futures trading risk management for price fluctuations can be handled without constantly monitoring the screen. This is where trailing stop comes in. By utilizing this feature, you can automatically follow market movements, protect profits, and aim for maximum returns.

Basic Mechanism of Trailing Stop

A trailing stop is an order that constantly tracks your position price to limit losses. Whenever the market price moves in your favor, the stop level automatically rises (or falls).

This feature exists in spot and margin trading as well, but it is especially valuable in perpetual and futures trading because it allows automatic setting of optimal stop-loss points when closing large positions.

When a trailing stop is activated, a market order is automatically triggered and your position is closed once the market price reverses by a specified distance or percentage.

Two Ways to Set It

Trailing stops can be configured in two ways:

1. Fixed Distance Method
Triggered when the price reaches a new high (or low) after activation, by a pre-specified dollar amount of decline (or rise).

2. Percentage Method
Triggered when the price changes by a specified percentage from the new high (or low). This method is especially effective when trading assets across different price ranges.

Practical Example Using Retracement Distance

Long Position Case

Suppose Trader A opens a long position on BTC at $30,000 and sets a trailing stop with a retracement distance of $1,000.

The following scenarios occur:

Initial Stage
If the last traded price does not exceed $30,000, the stop triggers at $29,000, similar to a regular stop-loss.

Price Rises
If the price rises to $31,000, the trailing stop automatically moves up by $1,000 to $30,000. If the price continues to rise, the stop level adjusts upward each time, maintaining the $1,000 distance.

Price Declines
If afterward, the price drops to $30,500, the trailing stop remains at $30,000. That is, until the price reaches a new high that exceeds the previous high by at least $1,000, the stop does not move.

Note
In a long position, since the trailing stop becomes a market sell order, the activation price should be set higher than the average entry price or the current last traded price.

Strategy Using Retracement Rate

Short Position Case

Suppose Trader B opens a short position on BTC at $31,000 and sets a trailing stop with a 10% retracement rate.

Initial Setting
If the last traded price does not go below $30,000, the trailing stop triggers at $33,000, similar to a regular stop-loss.

Price Decline and Stop Adjustment
If the price drops to $29,000, the trailing stop automatically adjusts by 10%, triggering at $31,900 ($29,000 × 110%). If the price falls further, the stop level follows each time.

Price Reversal
If afterward, the price rises to $29,500, the trailing stop remains fixed at $31,900. The position remains until a 10% retracement from the lowest point occurs.

Important Note
In a short position, since the trailing stop becomes a market buy order, set the activation price lower than the average entry price or the current last traded price.

Understanding the Calculation

From the above examples, the trigger price for a trailing stop can be calculated as:

For Long Positions:
Highest price − fixed distance, or highest price × (1 − retracement rate)

For Short Positions:
Lowest price + fixed distance, or lowest price × (1 + retracement rate)

Automatic Closure When Profit Target Is Reached

Using the activation price feature of the trailing stop allows you to activate the trailing stop only when the position is in profit.

Example for Clarity

Suppose Trader C holds a long position on BTCUSDT, with the current last traded price at $28,000. They want to start a trailing stop with a $500 distance once the price reaches $30,000.

They set:

• Retracement distance: $500
• Activation price: $30,000

When the price hits $30,000, the trailing stop activates immediately, setting the trigger at $29,500 ($30,000 − $500). From then on, it automatically follows market movements.

How to Set a Trailing Stop

Follow these step-by-step instructions to operate trailing stops in perpetual and futures trading:

Step 1: Go to Position Management Screen
On the trading page, display your open positions and select the trailing stop option.

Step 2: Specify Parameters
Choose either fixed distance or percentage method. If aiming for profit-taking, set the activation price simultaneously. Then tap confirm.

Step 3: Complete the Setup
The trailing stop order is successfully placed. You can review the details at any time.

Modifying or Cancelling
To change parameters, tap the trailing stop details and input new values. To cancel, tap the delete icon and confirm.

Effectively using trailing stops helps maintain consistent risk management strategies without emotional decision-making.