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Practical example:
1. Buying a currency at a price of $100
Suppose you bought a cryptocurrency for $100.
2. Setting the Trailing Stop distance
You decided to use a Trailing Stop with a distance of $5, meaning the stop order will move as long as it is $5 away from the highest price the asset has reached.
3. The price rises to $110
As the price rises from $100 to $110, the Trailing Stop order automatically moves and is set at $105 ($110 - $5).
4. The price drops to $105
If the price starts to drop from $110 and reaches $105, the Trailing Stop order is executed, and the trade closes automatically, thus you have achieved a profit of at least $5.
5. If the price continues to rise to $120
The order moves with the price and becomes $115 ($120 - $5), ensuring you protect a larger profit.
6. If the price then drops for any reason below $115
The trade closes automatically at $115, meaning you closed the trade and took the protected profit.
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Key points in usage:
The Trailing Stop distance must be appropriate to the volatility of the currency, not too tight so that the trade doesn’t get closed on minor fluctuations, and not too wide to protect your profit well.
This tool reduces psychological pressure because you don’t need to monitor the market all the time.
It helps in managing risks wisely and prevents s
ignificant losses.
