Trailing Stops are more flexible compared to fixed Stop Market orders as they track bitcoin’s price direction automatically and do not need to be reset manually.
Trailing Stop orders are set at defined amounts away from the prevailing Market Price and are designed for protecting gains (or minimising losses) as they allow traders to leave their positions open and profit continuously provided the price does not shift against the trader’s bias.
A Trailing Stop order move only in a single direction as it is specifically designed for limiting losses or locking in profits.
For instance, a Trailing Stop Buy order of 1 BTC with a trailing value of 200 will trigger a Market Buy order of 1 bitcoin in case the prevailing Market Price raises $200 from the previous low price level after the Trailing Stop was placed. This Trailing Stop moves downwards only when new lows have been established. Once they’ve been moved down, they cannot be moved back up.
Trailing Stop Example:
Suppose bitcoin price is currently $12,000 and a user wants to buy 0.55 BTC should the price raises by $300. The user may then establish a Trailing Stop Buy order for 0.55 BTC with a trailing value of $300. As a result, should the prevailing Market Price reach $12,300 or above, the trailing stop order will get executed as a Market Buy order. However, should the price first go down to $11,500, the trailing stop order execution price will move to $11,800 and only if the Market Price will go back up to $11,800 or higher, the trailing stop order will get executed as a Market Buy order.