Published on January 21st, 2022 | by Bibhuranjan


The Essence of Stop-Loss in Crypto Trading

Yes, stop-loss is one of the most basic trading techniques that can be applied to crypto markets. However, it remains relevant because of its ability to save you from losing money. Stop-loss allows traders to minimize losses by setting a threshold price at which their investment automatically sells for a pre-defined price.

Sounds simple? That’s because it is. Yet, so many people get this simple strategy wrong which results in either massive losses or the inability to break even.

Let’s take a look at how it works and how you can apply one of the most tried-and-true market tools right now!

This technique is meant to limit losses when exiting trades that are not doing well. For example, when BTC was in the $20,000 range and you bought it at $11,000 because you thought it will reach $25,000 within a month — well — you were in for a surprise and ended up losing half of your investment in the process.

Stop-loss allows you to limit your losses in case your prediction was wrong. In our example above you would have been able to sell BTC at $9,500 and severely minimize your losses on that trade.

Competitive Stop-Loss Strategy for Crypto Trading

In order to set the stop-loss right, it requires a bit of market research and knowledge in addition to your fundamental and technical analysis skills. It is the combination of these three that will help you identify when to buy when to sell on when not to enter a particular market.

How does stop-loss work in crypto trading?

When you are buying cryptocurrencies for the purpose of long-term investment, it may require you to set up several trades. Unless this is your day job, setting up several trades along with analysis and management of these will be quite tedious. However, in the process of doing this, it is possible that you might make mistakes in selecting your entry point or in setting up the limits for your buy orders.

It is at this point where stop-loss comes into play.

Image Credit Freepik

The reason why most beginner traders lose money is that they do not know the right time to enter and exit a particular market. A stop-loss strategy will allow you to set your trading orders at pivotal figures on the chart of an asset, thus minimizing any potential for loss from trade entry mistakes.

In order to use this effectively, you need to have enough knowledge about the market, the charts and of course, your own technical abilities. Stop-loss is not meant to replace your research or trading plan but should rather be used as a means for limiting losses if your judgment was wrong on the entry point.

The first step would be to find coins that you believe will perform well in the future. The next step would be defining the threshold of loss that you are willing to accept. In our example above, this would be $9,500 or BTC price at that point in time. You should also have a target exit order defined so that you know when to sell for maximum profits no matter how the market moves after your entry point are triggered!

There are some very important things that you should keep in mind when using stop-loss on cryptos. It is important to understand how stop-loss works before applying it in your crypto trading strategies. This is a great strategy to make money and prevent losses.

To put it simply, stop-loss eliminates the time you would need to monitor your trades, allowing you to enjoy life while your crypto-portfolio makes money for you!

Cover Image Credit: Freepik

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Editorial Officer, I'm an avid tech enthusiast at heart. I like to mug up on new and exciting developments on science and tech and have a deep love for PC gaming. Other hobbies include writing blog posts, music and DIY projects.

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