Strategy to Minimize Losses in Spot and Margin Trading Using Trailing Stops

OnchainSniper · 2026-02-22T00:05:16+00:00

The essay discusses the challenges of trading, particularly when to take profits and cut losses. It introduces trailing stops as a powerful tool for dynamic order management, helping traders automatically secure profits and minimize losses. The article explains the mechanism, benefits, and two setting methods (fixed distance and percentage) of trailing stops, along with practical examples for both buy and sell orders. Finally, it outlines the steps to place trailing stop orders effectively on trading platforms.

OnchainSniper

2026-02-22 00:05:16

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In trading, the biggest challenge is deciding when to take profits and when to cut losses. A powerful tool that helps solve this dilemma is the trailing stop. This feature automatically adjusts to price fluctuations, moving favorably to protect profits when the price moves in your direction, and minimizing losses when it moves against you. It functions as a dynamic order type that responds to market changes. It is especially utilized in spot trading on platforms like Gate and margin trading, and is favored by many traders.

Basic Mechanism and Benefits of Trailing Stops

A trailing stop continuously follows the market price and automatically adjusts the stop price based on predefined conditions.

Traditional stop orders do not move once set; if the price drops, the stop price remains fixed. In contrast, a trailing stop triggers only when the price reverses from its peak, allowing traders to maximize profits while maintaining flexible risk management.

This mechanism offers several advantages:

Automatic profit-taking: No need to manually sell to lock in gains
Elimination of emotional decisions: Trades are based on mechanical rules
Efficient management of multiple positions: Monitor multiple orders simultaneously

Note that this feature is available only for spot and margin trading. In perpetual and futures trading, it is only used as a position closing strategy.

Understanding Two Setting Methods: Distance-Based and Percentage-Based

There are two main ways to set a trailing stop. Choosing the optimal method depends on your trading style and market conditions.

Method 1: Distance-Based (Absolute Trailing)

Specify a fixed amount below the best price. For example, set to sell if the price drops by 1,000 USDT. This method is suitable for traders who want to clearly define a specific monetary loss limit.

Method 2: Percentage-Based (Relative Trailing)

Specify a percentage decline from the best price. For example, set to sell if the price drops by 10%. This method is effective when applying the same rule across assets with different price ranges.

Practical Examples of Trailing Strategies for Buy and Sell Orders

Buy Order Example

Suppose Trader A wants to buy BTC/USDT and sets a distance-based trailing stop with a 1,000 USDT trailing amount. If the current last traded price (LTP) is 50,000 USDT, the scenario unfolds as follows:

If LTP stays above 50,000 USDT, the stop price waits at 51,000 USDT, and a market buy order triggers when reached.
If LTP falls to 48,000 USDT, the stop price automatically adjusts to 49,000 USDT (48,000 + 1,000).
If LTP recovers to 48,500 USDT, the stop price remains at 49,000 USDT.
The trailing stop order triggers only when the price rises exactly 1,000 USDT above the lowest point (48,000 USDT).

Sell Order Example

Now, consider Trader B using a percentage-based trailing stop on ETH/USDT with a 10% decline setting, and the current LTP is 4,000 USDT:

If LTP does not exceed 4,000 USDT, the stop price is set at 3,600 USDT, ready for a market sell.
If LTP rises to 4,100 USDT, the stop price automatically adjusts to 3,690 USDT (4,100 × (1 - 10%)).
If LTP drops to 3,700 USDT, the stop price remains at 3,690 USDT.
The trailing stop triggers only after the highest price (4,100 USDT) has declined by 10%.

From these examples, the calculation formulas are:

For buy orders: Lowest price + trailing distance (or lowest price × (1 + trailing percentage))

For sell orders: Highest price – trailing distance (or highest price × (1 - trailing percentage))

How to Place Trailing Stop Orders in Spot and Margin Trading

Placing a trailing stop order is straightforward. Follow these steps:

Step 1: Select Order Type

Go to the spot trading page and choose “Trailing Stop” from the order type options.

Step 2: Decide on Trailing Method

Select either percentage-based or distance-based, and input the specific value.

Step 3: Specify Order Quantity

Enter the amount or quantity of the asset you want to buy or sell.

Step 4: Set Activation Price (Optional)

If you want the trailing stop to activate only after reaching a certain price, set the activation price. If you leave this unchecked, the order will start functioning immediately based on the current LTP.

Step 5: Confirm the Order

Click the buy or sell button to place the trailing stop order.

To view your current trailing stop orders, check the “Open Orders” tab under the “Trailing Stop” section. To modify an order, click the pencil icon; to cancel, select the cancel button.

Proper use of trailing stops can significantly improve trading efficiency. Mastering this tool allows for more strategic and disciplined trading.

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