Neither a magic wand, nor a profit machine, trailing stop-loss is simply a trading feature that helps you liquidate your position when the market moves against you. 

TradeSanta will be launching this order type in the near future. While waiting for the release, we thought it would make sense to consider trailing stop-loss in detail.

With trailing stop-loss, you don’t need to set your stop-loss manually each time a market trend changes in your favour. The order will only get executed when the trend moves against you.

What is trailing stop-loss?

Trailing stop-loss, or trailing-stop, is a type of trade order that gets executed once the price no longer moves in your favour, whether you use a short or long strategy. This type of order is designed to protect your gains while the trade is still open and continues to profit.

How trailing stop-loss works

Here is an example. Let’s say, you pursue a long strategy, meaning you buy coins at a lower price and then sell when the price goes up.

stop loss 300x169 - What is trailing stop-loss?
Trailing stop-loss set at 10% with long strategy

In this scenario, it’s important for you to sell your asset before its price goes down. If you add a 10% trailing stop-loss to a long position, a sell order will be activated when the price drops by 10% from its latest peak after the purchase. So unlike standard stop-loss that is activated when the price drops 10% from the initial buy price, trailing stop-loss is recalculated from the latest peak price.

Correspondingly, once you place a 10% trailing stop-loss to a short strategy, a buy order will get triggered when the price of the asset crosses the 10-percent mark.

This order type might become somewhat risky in volatile markets. Strong coins regularly demonstrate abrupt falls, and a low trailing distance might trigger liquidation of the asset before its price reaches higher levels.

So before adjusting a trailing distance for every order, we recommend you analyze volatility levels and market trends for every asset individually.