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Scenario:
After buying 1 BTC at a price of 10,000 USDT, the BTC price rises to 20,000 USDT, making you a significant profit. While you remain bullish, you're also concerned about potentially losing your current profits. So, how can you safeguard your gains?
Resolve this with our Trailing TP/SL!
1. What is a Trailing TP/SL?
Trailing TP/SL is an order type that tracks the market price, allowing users to open orders within a specific percentage or price difference range as the market fluctuates. It helps traders limit losses and lock in profits when the market reverses after moving in a favorable direction.
When the price is moving in a favorable direction, the trailing TP/SL will move in tandem by a predetermined percentage or margin. As long as the market price moves in the trader's favor, it keeps trades open and consistently profitable to lock in gains. Trailing TP/SL orders will not move in the opposite direction.
In other words, compared to regular TP/SL orders, users don't need to frequently modify their TP/SL prices based on market conditions in order to maximize profits after placing an order.
Next, we'll take a closer look at the mechanics of the trailing TP/SL, breaking it down for both long and short positions.
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When the price reaches point B, which is the activation price of 10,000, the trailing TP/SL order will be activated. At this time, the trailing TP/SL order's trigger price = 10,000 * (1 - 5%) = 9,500
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When the price rises to the historic high, at 10,500, the trigger price of the trailing TP/SL order at this point = 10,500 * (1 - 5%) = 9,975
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When the price falls but does not reach the callback rate of 5%, since the historical highest price is still 10,500, the trailing TP/SL order's trigger price remains unchanged at 9,975
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When the price rises to the historic high, at 11,000, the trigger price of the trailing TP/SL order at this point = 11,000 * (1 - 5%) = 10,450
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When the price drops to point C, the price is 10,450, reaching the callback ratio of 5% and triggering the trailing TP/SL order to sell the position at market price and close out the position.
- When the price reaches point B, which is the activation price of 10,500, the trailing TP/SL order will be activated. At this time, the trailing TP/SL order's trigger price = 10,500 * (1 + 5%) = 11,025
- When the price falls to 10,000, which is the lowest price in history, the trailing TP/SL order's trigger price = 10,000 * (1 + 5%) = 10,500
- When the price rises but does not reach the callback rate of 5%, since the lowest price in history is still 10,000, the trailing TP/SL order's trigger price remains unchanged at 10,500
- When the price falls to 9,500, which is the lowest price in history, the trailing TP/SL trigger price = 9,500 * (1 + 5%) = 9,975
- When the price drops to point C, the price is 9,975, reaching the callback rate of 5% and triggering the trailing TP/SL order to close the position at market price.
2. Case Studies
Case 1: Closing a Long Position In Favorable Conditions (Price Spike and Callback)
Current Position: 1 BTC Long
Open Price: 30,000
Last Price: 31,000
Based on the last price, the estimated unrealized PnL = (31,000-30,000)*1 = 1,000 USDT
Assumption: The recent market trends shows that the callback rate will not exceed 3% after every price increase. Now, suppose the following prediction is made: In the recent market, a Callback Rate within 3% is considered normal, and it can be assumed that the market will continue to rise. If the Callback Rate exceeds a certain value (let's assume it's 5%), then it's reasonable to believe that the bullish phase has ended (the price increase has come to a halt and a sharp drop is imminent). In this case, the position needs to be closed before the market price plummets.
Setting the trailing TP/SL:
Activation Price: 32,000
Callback Rate: 5%
At this point, as long as the last price continues to rise to 32,000, the trailing TP/SL will be triggered to track the price. During the subsequent market uptrend, once the system detects a callback rate of 5%, it will automatically execute a market order to close the position.
Case Two: Closing A Short Position In Favorable Conditions (Bottom Rebound)
Current Position: 1 BTC Short
Opening Price: 30,000
Last Price: 29,000
Based on the last price, the estimated unrealized PnL = (30,000-29,000)*1 = 1,000 USDT
Assumption: The recent market trends shows that the callback rate will not exceed 3% after every price decline. Now, suppose the following prediction is made: In the recent market, a Callback Rate within 3% is considered normal, and it can be assumed that the market will continue to decline. If the Callback Rate exceeds a certain value (let's assume it's 5%), then it's reasonable to believe that the bearish trend has ended (the price drop has concluded, and a sharp increase is imminent). In this case, the position needs to be closed before the market price rises quickly.
Setting the Trailing TP/SL:
Activation Price: 28,000; Callback Rate: 5%.
At this point, as long as the last price continues to drop to 28,000, the trailing TP/SL will be triggered to track the price. During the subsequent market decline, once the system detects a callback rate of 5%, it will automatically execute a market order to close the position.
3. How to Set Up a Trailing TP/SL?
There are three key parameters:
The callback rate is the main condition to calculate the actual trigger price. The actual trigger price will be calculated based on the historical highest/lowest price and the callback rate. To set a callback range, choose either "Callback Rate" or "Trailing Distance."
- Callback Rate: Assuming that the highest price on record is 50,000 USDT and the callback rate is 5%. When the price drops to 47,500 USDT = 50,000*(1-5%), the system will sell the order.
- Trailing Distance: Assuming that the highest price on record is 50,000 USDT and the trailing distance is 5,000 USDT. When the price drops to 45,000 = 50,000 - 5,000, the system will sell the order.
The amount of the trailing TP/SL order.
Activation Price (Optional)
The activation price is a prerequisite for the trailing TP/SL order to be activated. When the last price (latest transaction price) reaches or exceeds the activation price, the order will be triggered. After activation, the system starts calculating the actual trigger price for the trailing TP/SL order. If you don't specify an activation price, it will be immediately activated when the order is placed. The activation price can be default to the current price (choose either Mark Price, Last Price or Index Price).
4. Activation and Trigger Rules
Activation Rules
- If you don't specify an activation price, this will default to the current price, which means that it will be immediately activated when the order is placed.
- You can choose to activate the order at the Mark Price, Last Price, or Index Price. When the activation price is reached, the trailing TP/SL will be activated.
- Close Short: Last Price ≥ Trigger Price
- Close Long: Last Price ≤ Trigger Price
- Close Short:
- By Trailing Distance: Lowest Price + Trailing Distance
- By Callback Rate: Lowest Price * (1 + Callback Rate)
- Close Long:
- By Trailing Distance: Highest Price - Trailing Distance
- By Callback Rate: Highest Price * (1 - Callback Rate)
5. Notes:
(2) A trailing TP/SL order may fail to be triggered due to factors such as the contract being not tradable. Once successfully triggered, the subsequent market order might fail to be executed just like a regular market order. You can find the unfilled market orders under Open Orders.
(3) If the order is filled, it will either close your existing position in full or part. If your order fails to be filled, your position will remain open.
(4) The amount of orders that can be placed with a trailing TP/SL order varies for different types of contracts. The orders will be placed at the market price. The restrictions are subject to changes in market conditions.
Setting an optimal callback rate and activation price could be a daunting process.
For a trailing TP/SL to be effective, a callback rate should neither be too small nor too large and the activation price should neither be too close nor far away from the current price. When the callback rate is too small or the activation price is too close, the trailing TP/SL is too close to the entry price and is easily triggered by normal daily market movements. There is no room for a trade to move in the direction favorable to traders before any meaningful price move occurs. The trade will close/exit at a point where the market took a temporary dip and then recovered, resulting in a losing trade.
On the contrary, if the callback rate is too large, the trailing TP/SL will be only triggered by extreme market movements, which means the traders are taking on unnecessarily large risks.
There is no ideal optimal callback rate and activation price. Traders are advised to revise their trailing TP/SL strategy from time to time based on price fluctuations in the market. You should always carefully consider whether a trade is consistent with your risk tolerance, investment experience, financial situation, and other considerations that may be relevant to you. In addition to the range of price changes, always determine your callback rate and activation price based on your profit target and loss tolerance.