Trailing Stop is a simple and reliable trader's assistant

Why and how to use a stop order on a crypto exchange

Stop orders are orders to buy or sell an asset when it reaches a certain price. This tool helps investors to lock in profits or limit losses. If you are not familiar with the concept of stop orders, stop limits or stop loss on the exchange, this article is for you.

What is a stop order?

A stop order simplifies the achievement of some investment scenarios by automating trades. This option can be thought of as insurance that helps increase the chances of buying or selling at a precise price.

For example, you can use a stop order to buy bitcoin as soon as it rises to a given price. In another case, a stop order can be used to sell a digital currency when its price falls to a certain level.

Limit order

A limit order is an “order” on an exchange with a specific price limit. This limit is determined by the trader. The deal will be executed only if the price reaches the set limit (or better). Such orders can be configured in advance to sell or buy at a better price.

  • You expect ETH to go into correction, so place a limit order at -7% of the current price. The order will be executed if the calculations are correct.
  • Limit orders are often placed in anticipation of a good price when a coin needs to be exited. For example, you bought bitcoin at $ 8300, and its average price is now 7600 and there is strong volatility. You need to go into fiat, but you are in no rush. You place your limit order at $ 8305 or lower (depending on how many bucks you are willing to donate).

On Binance, this field looks like this:

  • Some traders place very low limit orders to buy bitcoin. This price seems unrealistic. For example, an order to buy at $ 2000 in 2019, when the average price is around $ 7000. Sometimes it works: the order book glitches or there is a strong failure in the market, and the price drops to this level for half a second - the order is triggered and the trader has an unexpected profit.

Unlike market orders, limit orders are not executed instantly, so you need to wait until the ask/ask price is reached (unless the current price is already equal to the one you set). Limit orders allow for more profitable buying and selling and are usually placed at major support and resistance levels. You can also split your buy/sell order into many smaller limit orders to get the average value effect.

Have you ever experienced an unexpected surge in volatility in the Forex market that knocked out your stop loss?

And that's all for the market to immediately turn in the opposite direction.

If yes, then it looks a lot like someone is hunting your feet.

In a sense, your stop losses are constantly being hunted down to pocket money from your relatively small trading account. However, your broker has nothing to do with this.

It's all about the “smart money” of large institutional players such as banks and hedge funds, which move the price into areas where stop loss orders are most likely to accumulate.

This is done in order to execute large trades.

If you are ready to learn how to responsibly place your stop loss orders and understand how the smart money is using the retail crowd to their advantage, then this article is for you.

What is Stop Hunting in Forex?

So, if your broker isn't trying to pocket your trading account, then what is stop hunting?

Stop Hunting is the liquidation of a large number of stop loss orders at once before the price starts to move in the opposite direction.

This is a function of the market, which is that the big players, known as “smart money”, look for clusters of stop-loss orders in order to be able to open positions of significant volumes.

The essence of this hunt is simple: “smart money” operates at the levels where it is easiest to buy and sell.

Smart Money

I think many of the readers of the RoboForex blog have been in situations when they made a buy or sell deal, set Take Profit at a distance of 50-70 points, placed Stop Loss at a distance of 30-40 points, and left on their own. business. Coming back, many saw that the price, having not reached a few pips to the Take Profit level, turned around and went in the opposite direction to Stop Loss. Was it possible to somehow optimize this situation, if not avoid it? Of course! And today we will discuss such a tactical trader's tool as Trailing Stop.

Trailing Stop: what is it and what is it used for?

As you know, Stop Loss is designed to limit losses in case the price of a trading instrument starts moving in an unprofitable direction. When an open position becomes profitable, the Stop Loss can be moved manually to a breakeven level, or to a level where Stop Loss becomes Stop Profit. That is, the movement of the limiting order is carried out exclusively following the movement of the price towards the Take Profit.

Since the trader does not always manage (conveniently) to be at the terminal, the Trailing Stop is used to automate the process of tracking the transaction. Trailing Stop is an optimized type of Stop Loss order that performs the function of a moving, or sliding, or floating (floating) Stop Loss, which can significantly increase the profitability of trading. Thanks to this tool, traders can adjust Stop Loss according to the changed situation and price. Thus, they protect their potential profit from unexpected price fluctuations.

This tool is especially useful when there is a strong fast unidirectional price movement, as well as in cases where it is not possible to closely monitor the changes in market conditions.

Trading with Trailing Stop

Trailing Stop is always associated with an open position, that is, before enabling Trailing Stop, a trader needs to open a trade. The Trailing Stop algorithm is serviced in the client terminal, not on the broker's server, as is the case with Stop Loss.

To set a Trailing Stop on the MetaTrader 4 platform, in the "Terminal" window, left-clicking on the line of the desired position, open the context menu, and in it open the corresponding item (Trailing Stop). Then, in the list that opens, select the desired distance between the Stop Loss order level and the current price. Only one Trailing Stop can be set for each open position.

After completing these actions, with the arrival of new quotes, the terminal checks whether the open position is profitable. As soon as the profit in points is equal or exceeds the specified level, a command is automatically sent to place a Stop Loss order.

The order level is set at a specified distance from the current price. Further, if the price moves with increasing profitability of the position, the Trailing Stop automatically moves the Stop Loss behind the price. If the profitability of the position decreases, the order is not modified. Thus, the risk level is automatically optimized or the profit of a trading position is fixed. Each time a Stop Loss order is automatically modified, an entry is created in the system log.

Trailing Stop can be disabled by setting the "No" parameter in the control menu. And when the "Delete all levels" command is executed, Trailing Stops of all open positions and pending orders are disabled.

Always worth remembering! Trailing Stop works in the client terminal, not on the server (like Stop Loss or Take Profit). Therefore, when the terminal is turned off, in contrast to the indicated orders, the Trailing Stop will not work. When the terminal is off, only Stop Loss, set by Trailing Stop, can be triggered.

Trailing Stop is processed only once per tick (price change). If there is more than 1 open order with a Trailing Stop for one symbol, then only the Trailing Stop order that was opened later than all is processed.

Many traders can successfully name the direction of the market, find an entry point, however, they often exit their trades too early - this is due to ignorance of such instruments as stop loss and take profit and unwillingness (inability) to use them correctly in trading.

Tell me, how often do you have such situations?

The price returns to the entry point and you close the position (it could also be that the price activates a protective stop loss order) right before the market reversals in the right direction.

Why is this happening? The main reason is that the stop loss is placed too close to the current market price.

You don't know exactly where to set your take profit. You, for example, place it on the level, and the price does not reach a few points and reverses and you lose your honestly earned profit.

Why is this happening? Setting a profit target is one of the most difficult aspects of trading. However, knowing where to set take profit doesn't have to be a problem!

In this article we will just talk about the difficult: how and where to place and how to calculate stop loss and take profit in order to get the maximum profit from trading.

What is stop loss?

Forex traders use many useful tools in their day to day trading. Perhaps one of the most commonly used is stop loss.

Stop loss is primarily an order that:

is placed to protect trading capital,

Orders, or exchange orders, are used by traders to open or close a position. That is, to make a deal. The most famous types of orders are market and limit. In the case of the latter, traders independently indicate the value of a cryptocurrency or other asset, expecting a suitable counter offer.

Definition

Limit Order - an order to buy/sell cryptocurrency at a specified price or better.

Such an order is not executed instantly, but is pending. That is, the user who has published such an order fills the market with liquidity, or “creates it”. These traders are called Makers.

A Buy Limit order is triggered when the price of an asset that a trader intends to purchase drops to a value specified by him.

A Sell Limit order is triggered when the price of an asset placed by a trader rises to a specified value.

The best price for an asset for sale is designated as Ask, for purchase - Bid. The difference between the Ask and Bid values ​​is the Spread.

After the asset price reaches the required level, the order is executed, but this also takes some time. It is also possible that one of the players with a suitable counter-order cancels it. Therefore, the final price of the purchased or acquired asset may differ slightly.

Such orders allow the trader to save time, since he does not need to constantly monitor the market, waiting for the asset to reach the desired price.

As for a Market Order, it is executed instantly at mid-market prices. The traders who publish them are called Takers.

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