Safety orders help to average the entry price of your opened position in case if the market starts going in the opposite direction against your position.
Averaging of the entry price of your position brings closer your take profit price target - so your deal could be closed with a profit even before full price recovery.
For example, if you trade long, but the price starts to falling above your entry price - the strategy will start to execute additional new orders and buy more to average your entry price.
For example, you trade long
Take profit is 5%
Safety order quantity is 3
Price deviation setting is 2%
1) Let's imagine that your strategy has opened a new position at the $10,000 price. That is your entry price.
2) You expect the price to rise and meet your take profit at $10,500 price (+5% from $10,000)
3) But the price started to go down.
4) As your price deviation setting is 2%, this means that with every -2% price drop - your strategy will execute 1 additional order and buy more BTC again.
- Start order execution - at $10,000 price
- #1 safety order execution - at $9,800 price (-2% drop from 10,000)
- #2 safety order execution - at $9,600 price (-4% drop from 10,000)
- #3 safety order execution - at $9,400 price (-6% drop from 10,000)
Why it is good?
As you bought BTC 4 times at 4 different prices it means that the average entry price of your position has been changed (lowered).
Let's calculate your new entry price.
(The start order price + safety order #1 price + safety order #2 price+ safety order #3 price))/total number of start and safety orders
Now your new average entry price is $9,700.
Before safety orders execution your take profit order was placed at $10,500 price.
But because of the average entry price decreasing from $10,000 to $9,700 - your take profit price has been also decreased.
Now your take profit price is +5% from your $9,700average entry price .
So it is: $9,700/100*105=$10,185.
So now your strategy doesn’t need to wait the price to rise to $10,500 as it was before.
The strategy will meet take profit target price as soon as the price reached $10,185.
And after closing this deal you will earn your 5% profit from this deal.
Safety order quantity
This option reflects how many times the strategy will make additional buys, that is the max number of safety orders which strategy will execute if the price continues to fall.
In the above example, the strategy placed 3 safety orders.
We recommend to use 8-14 safety orders.
Higher safety orders quantity - higher market fall your deal can sustain.
Remember that a lot of safety orders require a lot of liquidity on your balance.
This setting affects step between safety orders.
In the example BTC trade we had 2% deviation:
- The start order was executed at $10,000 price
- Safety order #1 was executed at $9,800 price (it is 2% below the start order price at $10,000).
- Safety order #2 was executed at $9,600 price (it’s 2% below the previous safety order execution at $9,800 price).
- The safety order #3 was executed at $9,400 price (it’s 2% below from the previous safety order execution at $9,600 price).
Max number of simultaneously active Safety orders
That is the number of the same time placed orders in the order book of the exchange.
Recommended to use 5.
It doesn’t mean that all these orders will be executed at the same time, they just will be placed same time on the exchange. Every order will be executed only after appropriate price drop.
It’s better to have 5 orders placed in advance for the case if Binance is overloaded at the time of big dump and doesn’t reply to GT App’s requests.
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