A trailing stop is an incredibly powerful instruction that can function both as a Take Profit or Stop Loss order. However, rather than triggering at an exact Stop Loss price, it is instead triggered by a specified amount of loss incurred by the most recent optimal LastPrice.
(Read our crypto technical analysis on Effective Exit Trading Strategies to improve trading)
This is How the Trailing Stop work:
- You open a Long position of any given contract with an Entry Price of $1000.
- You then select the Trailing Stop option and set a Trail Value of $100.
What are the potential outcomes to this scenario?
- If the price never rises above $1000, your most optimal LastPrice is also $1000. For the Trailing Stop to be triggered, the price would have to drop to $900 (most recent optimal LastPrice minus the Trail Value).
- If the price does rise above $1000, whatever the highest recorded price was, then becomes your most recent optimal LastPrice. For example, if the price rises up to $1900, the Trailing Stop would then be triggered only if the price drops to $1800.
- In order words, the Trailing Stop may never be triggered unless the most recent Optimal LastPrice drops by $100 (or whatever Trail Value you initially set).
What is the Activation Price?
The Activation Price feature takes this concept even further. Rather than letting market price movements decide your optimal LastPrice, you can choose to set this value yourself.
Combing the trailing stop with the activation price
For example: For the same scenario illustrated above, if you set an Activation Price of $1500, this means that the Trailing Stop instruction will only begin to monitor for a price change of your $100 Trail Value once the most recent optimal LastPrice has reached $1500. As long as the price does not reach your specified Activation Price, the Trailing Stop can never be triggered.
By combining these two new features of Trailing Stop and Activation Price, Phemex helps you ensure profits assuming the price eventually rises to your selected amount with Long positions or vice versa with short positions.
Head over to How do I set a Trailing Stop Order to follow a step-by-step video guide on how to set a Trailing Stop to an open position