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This is part of an ongoing series where I dive deep into Binance and show you how to get the most out of the exchange.
(Don’t have much time? Skip to the last section)
A Trailing Stop Loss (TSL) is placed just like an ordinary Stop Loss when entering a position; the difference here is that unlike a typical Stop Loss which is static, a TSL will follow the price as it moves up and wait if the price moves down.
The distance at which the TSL follows the price can be determined as a percentage, so if the current price of ETH was $100 and you had a TSL of -10% then your TSL would begin at $90 and follow the price at a maximum deviation of 10%.
Now you may be thinking: this is amazing! Why not use it all the time? But fortunately, I am here to tell you why that would be a bad idea.
A TSL is a tactical tool, it is more than just an extra precaution to throw on whenever you think you are being smart.
If used incorrectly, a TSL would most likely cause you to lose money.
A standard approach to trading, if holding a long position, is to move the Stop Loss up only after a pullback has occurred and the price is rising once again.
(Figure 1: Manually Adjusting Stop Loss)
The Stop Loss is moved up to just below the lowest swing of the pullback. See Figure 1 as an example.
Unfortunately, if a pullback did occur, an active TSL would most likely be triggered causing you to exit the trade right before the coin rises again.
The true potential for a Trailing Stop Loss (TSL) lies in its ability to exploit a rallying coin, allowing you to capture as much profit as possible without needing to actually call the top.
Let’s look at an example, consider Bitcoin (BTCUSDT) May 13th, 11:00 am:
Imagine that after spotting a potential inverse head and shoulders, you see that BTCUSDT has tested its 7115.23 resistance and is ready for a breakout. You keep your eyes peeled and wait for your opportunity to enter a position.
Volume spikes and BTCUSDT breaks its resistance! You buy in around 7115–7120 with a TSL percentage deviation of 4%.
(Figure 2: Entering BTCUSDT)
Typically, based on past highs, you would have some indication as to where the top might be. However, BTCUSDT has not traded within this range for over a year now, so accurately calling the top is almost impossible.
With your TSL in place, you ride it out and BTCUSDT reaches a high of 8099.60 before closing on the daily candle. At 7818.71, you exit the position and lock in a profit of 9.93%.
(Figure 3: Exiting BTCUSDT)
Ultimately, I made $142 on this exact trade since using a TSL enabled me to ride the rally until it had reached the top.
Another example of this happened on May 18th at 1:00 pm, where I used this same approach for NAVBTC. I entered a position at 0.0000310 with a tight TSL of 4.52%.
After 4 hours, NAVBTC closed the hourly candle with a high of 0.0000389; and locking in a profit of 20.96% (TSL triggered at 0.0000372). My position closed and I left with a gross return of $604.80 (approx. $500 starting position size).
In conclusion, using a Trailing Stop Loss (TLS) proved to be extremely successful when used on rallying coins, especially in situations where the top is hard to predict.
The profits from my first BTCUSDT trade in this experiment more than justified the $9.95 (a month) I paid in order to use Signal, which leads me onto the final section of this article…
Since Binance does not support a Trailing Stop Loss (TLS) natively, I use Signal. It is a simple tool and the process for setting a TSL is pretty straight forward. You just link your exchange, toggle “Trailing” on when creating your trade, and then specify how much you want it to trail by.
Thanks for reading. If there were any errors or omissions then please send me a message and I will include your feedback.
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