Today we will discuss a tool that traders most often complain about on stock exchanges — Trailing Stop Loss. Also, we will mention a very important function, which we will describe in detail in the next lesson.
Trailing Stop Loss is a tool that provides higher comprehensive care for the security of our capital while allowing for greater profits. This type of order starts from the moment it is set and moves with the increase or decrease of the rate.
On the platform, we have two types of Trailing Stop Loss (Trailing SL). The first is for sale and the second is for purchase.
Below are the examples of how it works:
To limit any losses when we suspect that the course may fall, we must set Stop Loss (SL). Let’s see what is the possible result of using the SL version, e.g. on the BTCUSD currency pair.
Current BTC price: $ 7,000
We set a stop loss of 1.5% below the current exchange rate.
The situation is as follows: The rate approaches $ 7250 and then drops to $ 6400.
Let’s compare the effects:
• Sales price with regular SL: $ 6,895
• Sales price with moving SL: $ 7,141.25
• The difference is $ 246.75
Below is a simplified instruction on how to set it:
In the Market panel select the Trailing SL option. Then, on the Sell side (on the right), fill in the Activation field by entering the percentage from the current rate, after which the order will be activated. In our case, we set it at 1.5%. In the second ‘Limit’ setting, provide the maximum acceptable price decrease, expressed as a %, at which the sale will take place. For example, 3%. We just have to provide the number of digital coins we want to issue.
With this version of Stop Loss, we can gain more if the rate increases. Which is way better than a Standard SL as it does not offer this kind of feature for a more favorable result.
Now we will explain what this function does when buying cryptocurrencies. If we choose a specific digital coin and decided to buy it at its current price, we will use a Market order. However, if we use Walking Purchase (Trailing SL), in the event that the price drops, it allows us to purchase at a better price than the current one.
In the previous BTCUSD example, we sold bitcoins at $ 7,141.25.
So we want to buy BTC at a cheaper price. If the rate again is $ 7,000, we can do it immediately with a Market order at this price or set a Rolling Purchase, which will cause the purchase of BTC after bouncing the price up, e.g. by 0.5%. Then we risk buying at $35 more. However, we can also gain a lot if the price does not go up immediately and drops first.
We remember from Example 1 that the price fell to $ 6,500, so if it was a sharp drop we could then buy a BTC for $ 6,532.50. We must take into account that the price rarely falls rapidly without bouncing at different intervals by more than 0.5%.
It will be helpful to move the Stop Loss cursor on the chart because the orders placed by SkyRocket are visible on it.
Now let’s set the rolling purchase order.
In the Market panel press Trailing SL. Then on the Buy side (on the left), we fill in the Activation field by entering the percentage after the increase, followed by a purchase (in our case it is 0.5%). In the second field with the Limit description enter the number of percentages to which the purchase is to take place. For example, we set it at 1.5%.
All that remains is to provide us with how many digital coins we want to buy.
Remember: there are no best percentages recommended for duplication in the tool. They depend on many factors, e.g. The pair we play on, Market situation, Volume, and many others. That is why it is worth trying various combinations and modifying them from time to time.
Finally, we want to introduce one more useful function that can allow you to get more profit. In the crypto world, there are cases of sharp drops in the asset prices (up to tens of %) and a quick return to the original price. We will not dwell here on the possible reasons for such situations, the fact is they happen. It is difficult of course to predict what digital assets are to be affected by such situations. This is why at SkyRocket we allow pricing orders to be put for up to several different coins, using the same available capital. But this is the story for the next article.
Visit us at https://skyrocket.trade/, set up a free account and feel free to test the above techniques!