Trailing stop is a dynamic risk control tool that helps users lock in profits or limit losses as the market moves in a favorable direction. Once the trigger price is reached, the system starts tracking the price movement. If the market reverses beyond the preset callback rate, the position will be closed at market price.
1. Execution Conditions
1.1 Market price must reach the user-defined trigger price;
1.2 Once triggered, the system adjusts the stop price following favorable market movement;
1.3 If the market reverses and the callback rate is met, the system closes the position at market price.
2. Parameters
• Trigger Price: Starting point for trailing stop. Must be higher (long) or lower (short) than current market price;
• Callback Rate: The percentage move from peak/trough to activate the stop;
• Market Execution: When triggered, a market order is submitted to close the position.
3. Use Case Examples
Example 1: Long Position with Floating Profit
Entry: 1 BTC long at 30,000
Current price: 31,000
Trigger: 32,000
Callback Rate: 5%
Price rises to 32,000, system activates tracking. It continues up to 35,000, trailing stop adjusts to 33,250.
If price drops to 33,250, the system closes at market price, securing profit despite the pullback.
Example 2: Short Position with Floating Profit
Entry: 1 BTC short at 30,000
Current price: 29,000
Trigger: 28,000
Callback Rate: 5%
Price drops to 28,000 and continues to 27,000. Trailing stop adjusts to 28,350.
If price rebounds to 28,350, the system closes the position at market price.
Example 3: Long Position with Floating Loss
Entry: 30,000
Current price: 25,000
Trigger: 28,000
Callback Rate: 5%
Price rebounds to 28,000 → activates tracking. Price reaches 28,500 → stop adjusts to 27,075.
Price drops to 27,075 → system closes. Reduces loss compared to low of 25,000.
Example 4: Coexisting Normal and Trailing Stops
Entry: 30,000
Market: 30,050
Trigger: current price
Callback: 5%
Normal Stop: 29,000
Price hits 30,060 → trailing stop at 28,557.
If price drops to 29,000 first → normal stop triggers → trailing canceled.
If price drops to 28,557 first → trailing stop triggers → normal stop canceled.
4. Important Notes
• Avoid setting the callback rate too low to prevent early exits;
• Large callback rates may miss the opportunity to exit profitably;
• Set the trigger price reasonably away from current price to avoid premature activation;
• Adjust parameters according to market volatility;
• Consider market context, profit targets, and risk tolerance when configuring trailing stop.
5. Terminology
• Callback: A partial reversal after a price trend;
• Callback Rate: The percentage change from peak/trough relative to current price;
• Long callback = (High - Current) / High;
• Short callback = (Current - Low) / Low.
Comments
0 comments
Article is closed for comments.