The most important part of any trading strategy is determining the right risk management plan. Before entering a trade, you must have a firm idea of where you should plan on exiting a trade. You can choose from different order types while trading cryptocurrencies. If you have ever done trading, you may be perplexed when it comes to orders. Isn’t it?
Now the question is, what do these order types mean and how to use them correctly? Trading cryptocurrencies on any exchange usually involves the traders placing market orders, limit orders, etc. But the more sophisticated traders require more advanced tools such as stop orders, trailing stop orders, stop sell orders, and more.
Let’s understand, what is a stop order?
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This is a kind of conditional order which is set to execute an order whenever it reaches to the predefined stop price.
Stop order allows traders to buy or sell an underlying asset once its price reaches to a specific point, called Trigger Price, that they set in advance. Once the market price of that particular asset reaches to the predefined trigger price, a buy or sell order will be executed automatically at the current market price.
What this means in practice is that a trader looking to sell BTC has two choices on how to sell it with a stop order. Either the trader can sell at a higher price using a take-profit order, or they can prevent their losses by setting a minimum price at which to sell the asset, using a stop-loss order. And, the same is true if he is looking to buy Bitcoin (BTC). The traders can set a specific price or the trigger price at which they want to buy BTC as per the available market conditions.
A stop sell order is placed below the current market price, and is used to limit the losses or protecting the gains on a long position. And, on the other side, a buy stop order is always placed above the current market price. This is used to prevent loss and protecting gains on the short trade.
For instance, let’s say a trader bought Bitcoin (BTC) at $4,000. He places a stop order to take profit, setting the trigger price at $5,000 and the order price at $4,950 ($50 less to ensure that the order gets filled immediately).
The trigger price serves as the threshold that the market needs to meet before the conditional order (Stop Order) comes into play. A trader could very well use the same value for both the trigger price and the order price, but given the volatile nature of crypto trading markets, it may result in orders remaining unfilled, as the price could temporarily touch $5,000 before dropping sharply.
Setting the order price slightly below the trigger price improves the chances of an order being filled even if the market doesn’t stay at $5,000 for long.
This means that if the market stays below $5,000, nothing will happen, but as soon the market price touches $5,000, this order price of $4,950 will be triggered and subsequently executed.
Similarly, the trader who bought BTC at $4,000 can prevent losses with a stop-loss order by setting the trigger price at, let’s say, $3,500 — and an order price of $3,450, for example — in order to exit the position within their acceptable margin for loss.
Alternatively, the trader can also set trigger and order prices to buy Bitcoin at certain levels for profitable entries (bullish or bearish) and so on.
This was about stop order. Now, let’s understand the advanced tools which traders can use with stop orders.
Advanced techniques used in stop orders
Managing risks and optimizing profits are the two basic ideas behind any successful trading. Professional traders use different techniques to earn profits and cut down their losses in cryptocurrencies. A properly executed stop order can help you achieve both. The two such techniques used in stop order are:
· Stop sell order
· Trailing stop sell order
What is a stop sell order?
This kind of stop order is used by traders while selling crypto assets. This order type is much different from limit orders. It includes a stop price which triggers the market order. So, the stop sell order has a specified stop price. This order is placed when the trade enters the stop price which is quite lower than the current market price. In this order type, the traders have to specify a stop price to sell the asset at that particular price. If the price of the crypto asset moves above the predefined stop price, a sell market order will be executed.
The stop sell orders are used in more advanced hedging and margin trading strategies at different crypto trading terminals. Let’s understand this order type with an example:
Suppose a trader buys a crypto asset at $30 and wants to risk no more than $5 per coin loss on the trade. Here, he will place a sell stop order just below $25, say $24.50. If the current market price of the asset moves down to $24.50, a stop sell order will be triggered, and your crypto asset will be sold at the next available price.
Trailing stop sell order
Using a trailing stop order is one way for a trader to gain better control on their order. This is an advanced version of the stop order. This is a conditional order which uses a trailing amount rather than defining a stop price. The trailing amount follows or trails a stock’s price which moves up for the buy orders or moves down for the sell order. Trailing amount could be designated in percentage or points.
Trailing stops provide efficient ways to manage risks and most of the traders use them as a part of their trading strategy. So, the trailing stop sell order is an order type where the traders will set a fixed stop price for the orders below the current market price as per the trailing amount/percentage. In this order type, the stop price increases concurrently with an increase in the market price, and it is always increasing with the initial interval set by the percentage of trailing amount.
Once the stop price is attained, the order will be triggered, and the same can be done in reverse for the buy trailing stop order. This is a risk management tool which allows traders to specify the conditions which will trigger an order automatically to sell the position. If you want to place a trailing stop sell order, then it would be placed at a price which was above the trade entry.
Let’s understand trailing stop sell order with an example:
Let’s say, you are buying LTC at $20 per coin. The price for the coin increases to $22. Now you would place a trailing stop sell order with a trailing stop price of $1 below the market price. As soon as the price moves in your favor, the trailing stop price will remain at $1 below the market price. If the price of LTC reaches to $24, and then it drops to some extent, your trailing stop price will remain at $23 here. And, LTC will be sold at $23 while the execution price may deviate. So, in this trade you have earned a profit of $3 per LTC.
How to place trailing stop sell order on Growlonix?
- First, you need to select Trailing Stop Sell order type
- Select Base and Quote coin. Say, Market: BTC/LTC
- Select the number of coins which you want to sell. You can also select percentage option to specify relative coin volume. E.g. 10 coins (Quantity could be in the fraction) or 10% of quote coin.
- Enter the quote coin price at which you bought. If it is left blank, the current market bid price will be used. E.g. 0.01216 BTC
- The offset is fixed percentage value below the market price. Using this, a stop loss order is placed with an offset of x% from the peak market. If the market will go up, stop loss value will go up. If the market comes down stop loss will not change. E.g. Offset = 3%
Placing Trailing stop sell order on Binance
The trailing stop order is enabled on Binance Futures. To place a trailing stop sell order on Binance, you need to follow the below steps:
- Move to place order section and move the cursor to stop limit order
- From the drop-down menu, select the Trailing stop.
- After clicking on Trailing stop, you will see call back rate (which could be a percentage available from 0.1% to 5%) and activation price. If no activation price is filled, it will be set automatically as per the marker price.
- To place a trailing stop sell order, the activation price must be higher than the current market price. And for a buy order, the activation price should be below the current market price. If the price doesn’t go above the market price, the stop sell order will not work.
For trailing stop sell order on Binance:
Activation price <= Highest price
For a long trade, the trailing sell stop order is placed above the trade entry. The trailing percentage is called as callback rate on Binance. A new trailing stop price is formed if the price of trade moves up. Whenever the price moves down, the trailing stop order will discontinue moving.
The sell order is issued only if the price moves more than the predetermined trailing amount/percentage from its peak price and reaches to the trailing stop price. Now, the trade will be closed with a sell order at the market price.
Growlonix is one of the best crypto trading terminals which allow its traders to perform trailing stop sell or buy orders on all those exchanges who don’t natively support such order types. Under one platform, the traders can trade on all the supported exchanges like Kucoin, Binance US, Binance Futures, BitMEX, CEX.IO, Kraken, etc. along with different order types supported by these exchanges.
In this guide, we have seen how trailing stop sell and stop sell orders work, and how to use them effectively. These are the most effective tools used by expert traders to lock in the profits. At Growlonix, you can use these order types and advanced tools on all the major exchanges. Apart from this, the platform also provides great features for these orders and performing fully-automated trades.
Apart from this, Growlonix offers the best crypto trading signals to help traders automate their trading strategies. Crypto signals reduce the pain of analyzing and validating quality coins along with high probability trade opportunities.