What is a trailing stop-loss?

Trailing stop-loss is a risk-management tool that helps you exit the market when you stop making a profit.

When setting up this trading feature, you make sure that you will not have to manually exit positions every time the trend turns against you. This type of order is designed to automatically protect your gains while the trade is still open and continues to generate profits.

How trailing stop-loss works

Let’s take a look at how this works in practise, say, when you go long

You know that with this strategy, to reap the reward, you need to sell your assets before their price starts to fall. If you add a 10% trailing stop-loss to a long position, the sell order will get executed when the price falls 10% from its latest peak. But as long as the market goes up, you will not exit it.

Compared to a trailing stop-loss, a regular stop-loss gets triggered only when the price falls by 10% of the initial purchase price no matter how many peaks gave you a chance to earn on them and exit on time.

That is, a trailing stop-loss lets you exit the market with profits, while a regular stop-loss makes you close the position with least losses.

To sum up

Being a great risk-management tool, a trailing stop-loss, however, is risky in volatile markets.

Strong coins regularly demonstrate abrupt falls, and a low trailing distance might trigger a liquidation of the asset before its price reaches higher levels.

Before setting up a trailing distance for each order, you should analyze the volatility and market trends for each asset separately.