Advanced Trading: Trailing Stop Market Order
A trailing stop market order is a stop order that can be set at a specific dollar amount away from a cryptocurrency’s last price, bid or ask. A trailing stop order can protect gains by allowing a trade to remain open and enables a trader to continue to profit if the price of a cryptocurrency moves in a positive direction. The order will close the trade if the price of the particular cryptocurrency changes direction by a specified dollar amount.
One of the biggest advantages of a trailing stop market order is that if a positive price trend develops in the market, traders can keep profitable trades open as long as the trailing stop market price is not reached. Trailing stop market orders can also be used if the price of an asset moves favorably but then moves in the opposite direction. A trailing stop market can help prevent a good trade from turning bad, or can at least reduces losses if a trade moves in the opposite direction the trader was hoping for.
The disadvantage of using a trailing stop market order is that markets do not move in a straight line. Prices can make brief, sudden, and sharp moves that can cause a trader to hit their stop market price. The price of the asset can then end up going back in trader’s direction but with the trader now on the sidelines, they no longer profit from any favorable price moves in the future.
Example of Trailing Stop Market Order
- Assume a trader buys Bitcoin at $10,000. Also, assume that by looking at the previous price advances in Bitcoin, the trader notices that the price often pulls back by $100 to $250 before moving higher again. In this example, the trader decides that prior price movements of Bitcoin will be used to help identify a level to initiate trailing stop-order to sell his Bitcoin. The trader decides to place a trailing stop market order at $300 from the last traded price. This means that if the difference between the last two trades on the site is more than $300 the trailing stop-market order will initiate and automatically create a market sell order of Bitcoin.
- Traders can consider changing the specified dollar amount of their trailing stop amount depending on market conditions. When the price of a particular cryptocurrency is volatile, having a wider trailing stop can be an advantage. In times of less price volatility, a tighter trailing stop can be effective.
How to Place a Trailing Stop Market Order on NDAX
- Login to https://ndax.io/
- Once you log in you will be redirected to your dashboard
- Click TRADE on the left-hand side of the screen
- On the trade page, click BUY (Green button) or SELL (Red Button) on the right side of the screen
- Click the small GREY ARROW in the upper left corner of the screen to pick the CRYPTOCURRENCY/CAD pair.
- Click the small GREY ARROW on the pop-up to display the dropdown list of Advanced trade orders.
- Click on TRAILING STOP MARKET
- ENTER ORDER SIZE
- ENTER TRAILING AMOUNT (the trailing dollar amount to initiate the market order)
- Click PLACE BUY/SELL ORDER