Trailing stop algorithm development

Trailing Stop Algorithm Development

Trailing stop is a dynamic stop-loss that follows price in profitable direction but doesn't go back on adverse move. Locks in profit on reversal, allows profitable trades to "run".

Types of Trailing Stop

Percentage trailing stop: stop at fixed % below (for long) highest reached price.

class TrailingStop:
    def __init__(self, trail_pct=0.02):
        self.trail_pct = trail_pct
        self.highest_price = None
        self.stop_price = None
    
    def update(self, current_price):
        if self.highest_price is None or current_price > self.highest_price:
            self.highest_price = current_price
            self.stop_price = current_price * (1 - self.trail_pct)
        return self.stop_price
    
    def is_triggered(self, current_price):
        return current_price <= self.stop_price

ATR trailing stop: stop at N × ATR below high. Adapts to volatility. Chandelier Exit — popular implementation: stop = highest_high(22) − 3 × ATR(22).

Parabolic SAR: built-in trailing stop indicator. Auto-accelerates on trend continuation (acceleration factor 0.02–0.2).

Practical Nuances

Market vs limit stop: market guarantees execution, but gap can cause significant slippage. Limit — better price, but non-execution risk on fast move.

Exchange trailing stops: Binance and Bybit support native trailing stop orders (callbackRate parameter). Better than software — executes on exchange even if bot offline.

Activation price: trailing stop starts tracking only after reaching activation price. Useful: enter $40k, activate trailing on $42k reach (locking 5% minimum profit).

Develop trailing stop module supporting percentage and ATR-based trailing, native exchange orders and software-based backup if native unavailable.