What Is a Trailing Stop Order and How to Place One on the KuCoin Spot Market?

The trailing stop order is a flexible and powerful feature available on the KuCoin Spot Market. This article will explore what a trailing stop order is and guide you through placing one on KuCoin. Find out how this order type can improve your crypto trading experience and help you maximize your profits and minimize risks.

Learn about how different order types work on the KuCoin Spot Market. 

A trailing stop order is an order type that allows you to set a stop order at a specific percentage or dollar amount away from the market price. In a trailing stop order, the stop price follows the market price by a specified distance when the market is moving favorably but locks when the market moves unfavorably. 

KuCoin's trailing stop order is a strategic tool for crypto traders, allowing flexible risk management and profit protection. It consists of activation price, trailing delta, buy/sell price, and quantity parameters. 

The activation price triggers the order, which then adjusts according to the highest or lowest market price, activating a buy or sell limit order if the market diverges from these peaks or troughs by the set trailing delta. 

This order type excels in volatile markets, helping traders secure profits while mitigating losses without needing to predict specific price targets. Finding the optimal trailing delta is key, along with balancing response to market conditions and price volatility.

A trailing stop order is a dynamic type of order used by traders in the cryptocurrency market and other financial markets to manage risk and protect profits. 

Unlike a standard stop-loss order, which is set at a fixed price, a trailing stop order moves or 'trails' a set distance behind the market price as it moves in a favorable direction (upward for a long position, downward for a short position). Trailing Stop Order makes it a more effective tool than traditional stop loss order in various scenarios: 

• In Volatile Markets: it shines in markets with large price fluctuations, allowing you to ride favorable trends while guarding against significant downturns.

• For Locking in Profits: The order is ideal in rising markets to lock in gains. The trailing stop moves up accordingly as the market price increases, securing accumulated profits.

• When Uncertain About Future Price Movements: If it's unclear how long a positive trend will continue or how high the price might go, a trailing stop order can help maximize gains without having to predict a specific target.

• When Seeking Flexibility: Trailing stops offer more flexibility as they automatically adjust to changing market conditions, unlike stop limit orders, which require a predefined price.

The trailing stop order adjusts automatically based on predefined criteria set by you, typically a specific percentage or dollar amount away from the current market price.

Find out the difference between stop market orders and stop limit orders. 

Let's look at an example to understand the trailing stop order better: 

Imagine a trader, Alex, buys Ethereum at $2,000 per token. Alex decides to use a trailing stop order to protect his investment and potentially lock in profits. He sets the trailing stop order 10% below the market price.

• Initial Purchase: Alex buys Ethereum at $2,000.

• Trailing Stop Order: Set at 10% below the market price, starting at $1,800.

• Price Increase: Ethereum rises to $2,400, so the stop order adjusts to $2,160.

• Price Reversal: If Ethereum falls to $2,160, the trailing stop order triggers, selling Alex's ETH at the best available price.

• Outcome: Alex either continues holding Ethereum if the price doesn't drop to $2,160, potentially gaining more, or sells at $2,160, securing a profit from the initial purchase at $2,000 and limiting loss to 10% from the peak price of $2,400.

Trailing stop orders offer several benefits in crypto trading, making them a popular tool you can use to manage risk and secure profits. Here are some of the key advantages:

1. Automated Risk Management: Trailing stop orders automatically adjust with market price changes, reducing the need for constant market monitoring and helping manage risk in the volatile crypto market.

2. Locking in Profits and Market Protection: These orders lock in profits by moving up with rising market prices and limit losses by triggering a sell order in declining markets, offering protection against sudden downturns.

3. Flexibility and Adaptability: Trailing stops can be set as a percentage or fixed amount from the market price, allowing customization according to individual risk tolerance and trading strategies.

4. Emotional Trading Reduction and Enhanced Discipline: They provide a predefined exit strategy, reduce emotional decision-making in trading, and enforce a disciplined approach by requiring specific exit points based on strategy and analysis.

5. Ideal for Day Trading Strategies: Trailing stop orders in crypto trading are generally more suited for short to medium-term trading strategies, such as day trading or swing trading, where capturing profits from market swings and protecting gains from sudden downturns are crucial. For long-term trading, where the focus is on holding assets through market volatility to capitalize on broader trends and growth over time, the use of trailing stops might lead to premature exits from positions due to the frequent and high volatility common in the crypto markets.

Step 1: Log In to Your KuCoin Account and Visit Spot Trading 

Access your account on the KuCoin platform. Select the Spot Trading option to enter the spot trading market.

Here’s how to place your first trade on the KuCoin Spot Trading interface. 

Step 2: Choose Your Trading Pair and Select 'Trailing Stop' Order Type 

Select the cryptocurrency pair you wish to trade, BTC/USDT, in this case. In the order type options, choose Trailing Stop.

Step 3: Set Your Parameters and Place Your Order

Determine the trailing distance or trailing delta (percentage or fixed amount) and the size of your order. After setting your parameters, such as Activation price, Trailing delta, Price, and Quantity, place your trailing stop order on the KuCoin Spot Market.

Using trailing stop orders in crypto trading can be a powerful strategy for managing risk and protecting profits. Still, it’s important to be aware of the potential risks and considerations before using trailing stop orders in the crypto market:

1. Market Volatility and Gap Risk: Trailing stop orders can be prematurely triggered by rapid price swings or market gaps, potentially leading to sales at lower prices than expected in volatile crypto markets.

2. No Guaranteed Execution Price: Since trailing stop orders become market orders upon activation, there's no guarantee they will execute at the stop price, especially in fast-moving markets.

3. Challenges in Setting the Correct Distance: A wider trailing distance provides more room for the asset to move without triggering a sale, which can be beneficial in a highly volatile market. However, it also means you could lose more potential profits if the price drops significantly before the stop is triggered. The challenge lies in finding a balance that adequately protects gains without foregoing too much profit.

4. Potential for Over-Reliance and Strategy Misalignment: Over-reliance on automation can lead to less active management of positions, and trailing stops may not align with certain trading strategies, especially those aimed at long-term gains.

5. Emotional Trading and Lack of Price Recovery Consideration: Trailing stop orders, like any trading decision, can be influenced by emotions such as fear or greed. You might set trailing stops too close to the current price due to fear of loss or too far due to greed for higher profits. Making these decisions based on emotional reactions rather than a well-thought-out strategy can lead to suboptimal outcomes, such as exiting a position too early or holding onto it for too long.

Trailing stop orders are a strategic tool for traders who wish to automate their risk management and profit-taking. On KuCoin's Spot Market, this order type offers flexibility and control, adapting to market movements to optimize your trading strategy. As with any trading tool, it's essential to understand the risks and mechanics of trailing stop orders before using them.

We hope this article has been helpful. If you have any other questions, please contact our 24/7 customer support via online chat or submit a ticket. 

For more KuCoin product guides and educational content on trading, investing, crypto, and web3 concepts, visit KuCoin Learn. Happy trading!