dynamic-stop-loss

📘 Master Smart Dynamic Stoploss in Freqtrade: Only Cut Loss When Necessary

This article was produced by the Quantitative Trading Lab at https://www.itrade.icu. Visit for more benefits. In automated trading, stoploss is key to controlling losses and protecting capital. Compared to fixed stoploss, Freqtrade's custom_stoploss allows dynamic, flexible stoploss design, helping you protect profits during uptrends and exit quickly during losses.

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✳️ What is custom_stoploss?

custom_stoploss dynamically calculates and returns a stoploss price based on position status, time, market conditions, etc.

• Return type: float (new stoploss price)

• Return -1 to continue using the default stoploss mechanism

⚠️ Note: Only for stoploss, not take profit. Use custom_exit for exit strategies.

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📌 Typical Use Cases

• Trailing stoploss

• Multi-level dynamic stoploss (move stoploss up with profits)

• Profit protection at highs

• Tiered stoploss (wide to tight)

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🧪 Example 1: Classic Trailing Stoploss

Move stoploss up with price, always keeping 2% below current rate:

def custom_stoploss(self, trade, current_time, current_rate, current_profit, **kwargs) -> float:
    entry_price = trade.open_rate

    if current_profit < 0.05:
        # Before profit zone, initial stoploss at -2%
        return entry_price * 0.98

    # Once profit >5%, move stoploss to 2% below current rate
    return current_rate * 0.98

✅ Stoploss always rises with price; never decreases. ⚠️ Stoploss only moves up, never down.

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🧪 Example 2: Profit-Tiered Stoploss

Define stoploss according to profit tiers:

• Profit 0~5% → Stoploss -2%

• Profit 5~10% → Stoploss 0% (break-even)

• Profit >10% → Lock in 5% profit

def custom_stoploss(self, trade, current_time, current_rate, current_profit, **kwargs) -> float:
    entry_price = trade.open_rate

    if current_profit < 0.05:
        return entry_price * 0.98  # Stoploss -2%
    elif current_profit < 0.10:
        return entry_price  # Break-even
    else:
        return entry_price * 1.05  # Lock 5% profit

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🧪 Example 3: Tolerate Small Drawdowns

Some coins are prone to quick pullbacks (“stop hunting”). Set stoploss only if loss exceeds 3%:

def custom_stoploss(self, trade, current_time, current_rate, current_profit, **kwargs) -> float:
    if current_profit < -0.03:
        return current_rate  # Stoploss at current price
    return -1  # Use default stoploss

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📊 Stoploss vs Take Profit

Feature	Take Profit (custom_exit)	Stoploss (custom_stoploss)
Trigger exit	✅ Immediate sell	✅ Set new stoploss price
Frequency	Evaluated each period	Evaluated each period
Purpose	Lock profits	Limit loss / protect capital
Return value	True / False / float	Stoploss price (float) / -1
Complementary	Can work with custom_exit_price	Can work with trailing_stop

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🧰 Suggested Use with trailing_stop

"trailing_stop": true,
"trailing_stop_positive": 0.02,
"trailing_stop_positive_offset": 0.04

• Let custom_stoploss manage initial stoploss,

• Then let trailing_stop take over to protect profits as price rises.

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🧭 Configuration Tips

• Define custom_stoploss in your strategy; no extra activation needed.

• Recommended settings:

"stoploss": -0.99,  // Avoid default stoploss triggering
"trailing_stop": false // Or coordinate logic if using trailing stop

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📈 Trailing Stop Illustration

Stage	Price	Stoploss	Notes
Initial entry	100	98	Initial stoploss
Price ↑	105	102.9	Stoploss moves up
Price ↑	110.25	107.945	Locking more profit
Price ↑	115.76	113.45	Continue trailing stop

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📌 Key Reminders

• Return value is stoploss price, not percentage.

• Return -1 to skip changes; default stoploss applies.

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📦 Summary

• custom_stoploss is one of Freqtrade’s most powerful risk management tools

• Supports trailing stop, multi-level logic, and profit protection

• Combined with trailing_stop and custom_exit, it forms a complete capital defense system