1. What is trailing stop?
Trailing stop is a strategy that tracks market prices, allowing users to preset orders based on a specific price retracement ratio or price retracement difference. This strategy limits losses and secures profits when a position's gains experience a retracement.
2. What are its advantages compared to regular take-profit and stop-loss mechanisms?
Conventional take-profit and stop-loss settings can only trigger at a fixed price. When the price breaks above or falls below this specified price, the position is closed. To maximize returns in one direction, frequent manual adjustments to the trigger price are required.
While the trailing stop automatically updates the trigger price based on market price fluctuations. As the market moves in one direction, the lowest price or highest price is continuously refreshed, and the trigger price for take-profit or stop-loss is also updated accordingly. This process continues until the market retraces and reaches the preset variance, at which point the position is closed.
*Please note that trailing stop loss and take profit only focus on the most recent trigger price, not the average opening price. Therefore, whether the closing position is profitable depends on the timing you set. The ultimate goal is to preserve as much profit as possible when your gains are decreasing or to minimize further losses when your losses are reducing.
3. Where to set up trailing stop?
After opening a position, you can set the take-profit and stop-loss features on the position.
4. How to Set Trailing Stop?
Set a price callback spread or callback ratio: For a long position, the trigger price is set as a price lower than the highest price by the spread. For a short position, the trigger price is set as a price higher than the lowest price by the spread.
[Long Position Example] Holding a BTC long position with a mark price of 75,000
Activated at the current mark price, with a 3% price retracement: the trigger price is 75,000 * (1 - 3%) = 72,750.
If the price rallies to 80,000, the trigger price becomes 80,000 * (1 - 3%) = 77,600.
When the price falls from the peak to the trigger price, the long position will be closed.
[Short Position Example] Holding a BTC short position with a mark price of 85,000
Activated at the current mark price, with a 3% price retracement: the trigger price is 85,000 * (1 + 3%) = 87,550.
If the price continues to decline to 75,000, the trigger price becomes 75,000 * (1 + 3%) = 77,250.
When the price rises from the bottom to the trigger price, the short position will be closed.
If you wish to execute trailing take-profit or stop-loss only after exceeding or falling below a certain price level, you can set an "activation price." Trailing take-profit or stop-loss will not be triggered until the activation price is reached.
5. Description of Trailing Stop Order Quantity
After opening a position, multiple trailing take-profit and stop-loss orders can be set. Currently, the program requires that the total closing quantity of trailing take-profit and stop-loss orders must not exceed the total held position at the time.
For example, a position holding 1 BTC can be split into 0.5+0.5 or 0.3+0.3+0.4, but the total amount cannot exceed 1 BTC.
However, if different types of close position orders are also set (such as limit orders, stop orders, etc.), and other orders are triggered or executed first, it may result in the close position quantity for this order being less than the required amount when it is triggered. In such cases, the system will close as much as the remaining amount allows.
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