Trailing Stop Loss Orders: Automated Profit Protection in Trading

What is a Trailing Stop Loss?

A Trailing Stop Loss is an advanced order type that allows traders to automatically protect profitable positions without constantly monitoring the price. This order variant dynamically adjusts to price movements and automatically activates a sell order once a predefined distance from the current high is breached.

The main advantage is that you can benefit from rising prices while securing your gains through an automatic stop mechanism. This is especially valuable in volatile markets where situations can change rapidly.

Two Types of Trailing Stop Loss Explained

Percentage Variant: Flexible Protection in Percentage

This variant defines the stop-loss as a percentage distance from the current market price. It is particularly suitable for traders who want to protect their positions proportionally to market movements.

Practical example of the percentage variant:

Suppose you buy an asset at $100 and set a Trailing Stop Loss at 10 percent below the current price:

• If the price drops to $90 (10% decline), your sell order is triggered immediately
• If the price rises to $150 and then falls to $140 (only 6.7% decline), the order remains active. It will only be triggered at $135, which is 10% below the new high
• If the price climbs to $200 and then drops exactly 10% to $180, the order is released for execution

This flexibility allows you to profit from upward trends and exit only during significant price declines.

Constant Variant: Fixed Protection in Currency Units

In this variant, a fixed amount is defined as the distance from the market price. This is suitable if you want to maintain an absolute loss limit.

Practical example of the constant variant:

Scenario: Current price is $100, and you activate a Trailing Stop Loss with a fixed distance of $30:

• If the price drops by $30 to $70, the market sell order is triggered
• If the price rises to $150 and then falls by $20 to $130, no trigger occurs. The stop would only activate at $120 ($30 distance from the high)
• If the price reaches $200 and then drops by $30 to $170, the sell order is issued

The constant variant gives you precise control over the maximum loss per transaction.

Optimal Configuration with Activation Price

To react more flexibly, you can set an activation price at which the Trailing Stop Loss becomes active. This allows protection to be enabled only after reaching a certain profit level, rather than immediately upon purchase.

Critical Points When Using

Position and Margin Management:

• Your held positions are not frozen until the Trailing Stop Loss order is triggered
• Before placing an order, ensure sufficient margin or holdings are available to avoid potential margin calls

Potential Triggering Issues: Technical or market-related factors can affect execution:

• Price limitations during extreme volatility
• Insufficient available margin at execution time
• Trading restrictions or temporary system outages
• Even if the stop condition is met, subsequent market orders may not be fully executed under unfavorable conditions
• Partially filled or unfilled orders can be found in your Open Orders overview

Practical Recommendation

The choice between percentage and constant variants depends on your trading strategy: Use the percentage variant for longer-term positions with volatile assets to benefit from upward trends. The constant variant is suitable for short-term trades when you want to maintain a fixed loss limit.

Risk Note: Cryptocurrencies and digital assets carry high risks and significant price fluctuations. Trading these instruments is complex and requires comprehensive knowledge. Make sure you fully understand how Trailing Stop Loss orders work before deploying them in real positions. When in doubt, consult an experienced trader or financial advisor.