Imagine the following situation: you want to buy one Bitcoin for USDT.
The price is attractive and continues to slowly decrease. Considering the current downward trend, you are willing to wait for a little, and enter the market at an even lower price, increasing your potential profit... and at the same time, you would like to spend your time in a more delightful way rather than staring at the screen. Just in case, you set an ordinary buy stop order and go do your business.
The price, taking advantage of your absence, precipitously falls (to an extremely favourable purchase position), and then rises up to previous positions or even higher. Your stop order gets activated at the level you set, automatically purchasing you the indicated amount of Bitcoin.
Initial Bitcoin price — 5,600 USDT
The activate level of your stop order — 5,620 USDT
Purchase price — 5,630 USDT
Lowest Bitcoin price before growth — 5,030 USDT!
The profit that you’ve missed — 600 USDT! (5,630-5,030)
Everything is executed as you ordered. But at your return, you find out that you could have bought Bitcoin at an even more profitable price ...
Disappointing? Of course!
Of course, the potential losses could be either less or more than those indicated in this example, but the message is the same: in this situation you really missed a “smart” stop order that would have moved down as the price fell, and would get automatically activated, as soon as the price would start rising up.
There is such a tool on KickEX — it is called the “trailing stop order”.
Let's imagine the exact same situation, but this time using the trailing stop order:
You still want to buy 1 bitcoin (BTC) for USDT.
The price is attractive and continues to slowly decrease. Considering the current downward trend, you are willing to wait a little, and enter the market at an even lower price, increasing your potential profit... and at the same time, you would like to spend your day in a more delightful way rather than staring at the screen. Just in case, you set a trailing stop order and go do your business.
At this time, the price starts to fall, reaches the activate level of your trailing stop order, and continues to decrease, but this time along with your trailing stop order. As long as the price keeps falling, the activate level, stop level and limit price will move downwards as well.
When the market price stops falling and starts an upward trend, the activate level, stop level and limit price will remain at the lowest position. And as soon as the price rises to a new stop level (decreased and adjusted to the current price), a limit order will be immediately sent into the market, which will buy Bitcoin for you at the most favourable rate, maximizing your profit.
Here are some details:
Let’s consider that the initial price of Bitcoin is 5,600 USDT and a downward trend.
We set the activate level of the trailing stop order at 5,550 USDT.
In order to get a prompt response once the price would change direction, we decide to set the stop level 30 USDT above the activate level, at 5,580 USDT.
Finally, we need to choose a convenient limit price (a certain amount which is still profitable for a buy, even though superior to the lowest price reached by Bitcoin during this fall). Let's set it at 30 USDT above the stop level, so at 5,610 USDT.
The price drops to our activate level at 5,550 USDT and continues to move down. The activate level, stop level and limit price start to decrease along with the current market price. In this case, the activate level will be equal to the current price (once the price dropped to our activate level, they start moving together until the downward trend persists). However, the difference of 30 USDT that we’ve set between the activate level, stop level and limit price will remain the same.
For example, when Bitcoin drops to 5,500 USDT, the activate level will be equal to this market price: 5,500 USDT. The stop level, respectively, will be 30 USDT higher than the activate level, 5,500 + 30 = 5,530 USDT. The limit price will be 30 USDT above the stop level, 5,530 + 30 = 5,560 USDT.
Bitcoin drops to 5,000 USDT and begins to increase in price. However, the activate level remains at the lowest position, at 5,000 USDT and doesn’t increase. The new stop level also remains at the new “low” position, at 5,030 USDT. The new limit price is, respectively, at 5,060 USDT.
Once Bitcoin will reach the new stop level (5,030 USDT), a limit order will be sent to the market buying you the coin at around 5,050 USDT (and before reaching this limit price).
And now briefly in numbers:
The initial price of bitcoin is 5,600 USDT.
The initial activate level of your trailing stop order is 5,550 USDT.
The initial stop level is 5,580 USDT.
The initial limit price is 5,610 USDT.
Bitcoin price before the start of growth 5,500 USDT = new activate level of your trailing stop order
New stop level is 5,030 USDT.
New limit price is 5,060 USDT.
The buy price is 5,050 USDT.
Your savings are 550 USDT (5,600-5,050).