As we know, the crypto market is known for its high volatility. This makes investors often worry about losing money. Therefore, a good strategy is needed for trading crypto.
One popular and effective strategy for protecting the value of our investment in the crypto market is the trailing stop.
This article will take a deeper look at what a trailing stop is in the crypto market and important tips when using a trailing stop.
What is a Trailing Stop?
Trailing stop is a way to limit risk in protecting profits from falling prices.
But, by setting a trailing stop as a certain percentage of the distance of the trailing stop, the trailing stop will continue to follow price movements when the stock price increases.
Likewise, if the stock price drops, the trailing stop will remain at the distance previously set.
Then what about the crypto market? Can the trailing stop method be applied?
The answer is yes. The advantage of using a trailing stop in the crypto market is that it can help you as a trader protect profits and minimize risk.
Trailing stops make it possible to avoid significant loss of money in the event of a sharp price drop.
The Best Trailing Stop Strategy to Protect Your Crypto Investments
For novice traders, the recommended trailing stop strategy is to set a trailing stop distance that is larger than the risk taken.
For example, if you risk 2% of your investment, the distance or setting a trailing stop can be set at 4% or 5%.
To provide sufficient space for normal price movements and avoid exiting the market too quickly.
Meanwhile, those of you who are experienced can use a fairly aggressive trailing stop strategy by setting a smaller trailing stop distance.
This allows traders to take greater risks and maximize profits in volatile price movements.
From the information above, the key to this strategy is calculating the risk you are taking and adjusting the distance of the trailing stop according to the risk profile you will get.
Example of a Trailing Stop Case in the Crypto Market
To better understand the trailing stop strategy, here are examples of cases where trailing stops are used in crypto trading:
The trader decides to buy Bitcoin for $50,000 with a target profit of 10%. The trader also places a 5% trailing stop, meaning that if the Bitcoin price drops by 5%, the trailing stop will activate and sell Bitcoin automatically.
After some time, the Bitcoin price rose to $60,000, and the trailing stop also rose along with the price increase to $57,000. However, the Bitcoin price dropped to $55,000, and the trailing stop activated, selling Bitcoin at $57,000.
In this example, the trailing stop helps the trader protect a profit of 7% on his investment.
Even though the Bitcoin price fell after hitting the profit target, the trailing stop succeeded in selling Bitcoin and making the expected profit.
The simple analysis of the profit and risk examples of trailing stops in the crypto market above, trailing stops help traders to lock in profits before Bitcoin prices fall further.
However, using a trailing stop also carries risks. One of the risks is a false breakout or a short but strong enough price movement to touch the trailing stop and sell the asset.
This can lead to lost profits that should have been made if the trailing stop was not activated.
In addition, trailing stops are also unable to deal with bigger market risks, such as high market volatility or sudden price drops.
Therefore, trailing stops must be combined with good risk management and a solid understanding of market conditions.
Tips for Using a Trailing Stop in the Crypto Market
After knowing the advantages and disadvantages of using a trailing stop, you are more profitable in investing in crypto.
Here are some important tips when using trailing stops in the crypto market:
1. Avoid overtrading
Overtrading can occur when taking too many open positions at the same time.
This can result in losing control of your trading portfolio and significantly increasing the risk of losing money.
So, ensure again to avoid over-trading by using trailing stops only on the most important trading positions with sizable profit potential.
2. Determine the proper trailing stop distance
Choosing the right trailing stop distance maximizes profit and minimizes risk.
Select the appropriate trailing stop distance according to your risk tolerance and consider the current volatility of the crypto market.
3. Adhere to your trading plan
When you use a trailing stop, adhere to the trading plan and stick to the trading strategy you have previously set.
Don’t let emotional factors play a role and make irrational trading decisions.
4. Monitor market trends regularly
The crypto market can be very volatile and changes quickly. Therefore, monitor the market regularly and make adjustments if necessary.
5. Check your trailing stop settings again
Finally, check your trailing stop settings regularly and make adjustments if needed.
This will help ensure that your trailing stop is appropriate for current crypto market conditions and help protect your crypto investments.
In conclusion, trailing stops can be an effective trading strategy for protecting investments in the crypto market.
However, traders must pay attention to the factors influencing the right trailing stop distance, avoid overtrading, and always be disciplined in trading.
Where to buy crypto?
Still trying to understand where to buy crypto after reading the definition, how it works, the advantages and disadvantages, and tips on trailing stop.
Immediately visiting the INDODAX market, you can buy and sell crypto assets easily and simply in the INDODAX application.
It is enough to download the latest version of the INDODAX application with abundant features, both for your iOS and Android users. Still in doubt too! You can learn about crypto assets at INDODAX Academy.