What does 'Distance' mean when editing a trailing stop?

[Guest mappamundi]

I understand the 'level' and 'step fields when opening a position with a trailing stop (i.e. every time the price moves 'step' points away from the 'level' price my stop will move 'level' points in line with it.

But what is the 'distance' field for that's there when you're editing a position (but not when opening a new one)?

[JamesIG]

Distance is the actual distance away you want to first set the stop level before it starts to move, or step up. 

It's similar to level, however level is an exact stop price point, whilst distance is a fixed value away from where the market is right now. 

Say the market is 100 and you're limit order to open a position is at 95 with a stop level of 70 (a distance of 25 points), if the market gaps over your entry point to 93 you're going to be filled at 93 with a stop still at 70 (even though the distance is now only 23). With an open position, distance becomes fixed (i.e. 25 points away will always be 25 points away). 

I hope this clarifies.

[Guest folded]

Thanks for the reply (I made the post on a guest account, this is my real one). I still don't think I completely understand though.

Say I open a buy position on Amazon.com at 180000, with a trailing stop at level 175000 with a step of 2000. This means that if the price moves to 182000, then my stop moves up to 177000 right?

If I then edit this stop,the new 'Distance' field appears with the value 5000 (so it is opening price - the level I set). If I then change Distance to 10000 but leave the other fields the same, what does this do? I'm confused because it still seems like my stop is the same (at 175000).

 

[Guest folded]

3 minutes ago, folded said:

Thanks for the reply (I made the post on a guest account, this is my real one). I still don't think I completely understand though.

Say I open a buy position on Amazon.com at 180000, with a trailing stop at level 175000 with a step of 2000. This means that if the price moves to 182000, then my stop moves up to 177000 right?

If I then edit this stop,the new 'Distance' field appears with the value 5000 (so it is opening price - the level I set). If I then change Distance to 10000 but leave the other fields the same, what does this do? I'm confused because it still seems like my stop is the same (at 175000).

 

Re: what I just said, I may understand it now. Is it that the 'Distance' field overrides the original level field for all future moves of the stop? So in my example, if I set the Distance to 10000 and the price then moved to 182000 as I described, then my stop would actually move down to 172000, as it is now set to be always 10000 away from the price?

[Guest Guest]

Hi @folded,

I'm not sure if the answer is still relevant, but as far as I know the trailing stop works as the following:
- The stop level doesn't exist before the position is filled
- There's a stop distance that determines the stop level, if and when the position is filled
- There's a trailing stop step

Example: Amazon with Stop Distance 5000 and Stop Step 2000

When the position is filled at level 180000 then Stop Level is set to 175000 and stop distance is 5000.
The distance when the position is filled gets a new meaning, and it means how much the market price should move in favor before the stop starts trailing. How far away the market price is from the stop level before the stop level re-adjusts.

In case of a "bull" or "buy" position, the price needs to move 'distance' away from the open level of 180000 before starting to "trail" a.k.a follow the market price movement in 2000 steps.

So Amazon 180000 becoming 181000 will keep the stop level at 175000. Amazon moving to 182000 will trigger the 'trailing' and stop level will start to follow the price to 177000. If adjusting stop distance to 10000 Amazon going up to 187000 from 180000 will move the stop level to 177000. The stop level will only trail the market price moves favorably providing protection, if price starts moving in the other direction the position will close at 177000.