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December 12 2022 Cryptocurrency

The cornerstone of profitable trading: setting a stop loss

When deciding to buy a cryptocurrency because you think you can make a profit on the price change, there are a number of factors to consider. One of the most important things to think about is setting a stop loss. A stop loss helps us avoid unnecessarily large losses in our trading.

Stop loss is a tool that every cryptocurrency trader should be familiar with. Its big advantage is that once you have set it up, you don't have to watch your monitor or phone screen all day, as the cryptocurrency will be sold based on the parameters you set.

Similar automatic settings are also available in our automated trading software, which can trade within the limits you set. The RSI bot can use the Relative Strength Index to determine the direction of the market and thus trade automatically.

What is a stop loss?

A stop loss order allows us to set in advance at which price and how much cryptocurrency we want to sell or buy. Basically, it is used to prevent a position from becoming too negative. 

With the pre-set parameters, even if the cryptocurrency starts to plummet, we will not suffer a huge loss. After all, if we set the stop loss to 85%, we could lose up to 15% of our invested capital. This can be particularly useful in a fast-moving market like the cryptocurrency exchange, which is also open all the time.

The opposite of a stop loss is a take profit order, where a price higher than the buy price is set and the trade is automatically triggered when the cryptocurrency reaches that price level. In a volatile market such as cryptocurrency, it makes sense to think about and set both in advance. 

Advantages of setting a stop loss

Let's take a situation where we buy an imaginary coin that we think has a good chance of going up, and currently has a price of $100. We set a stop loss order at $87, because we see that this is the price below which the coin is not nearly as strong. After that, we don't need to keep checking our position, we can sleep easy, because if the worst happens and the price starts to go down, we could lose up to 13%.

Setting a stop loss order does not cost anything, it only takes place at the set level, so it costs exactly the same as a sell order. In the meantime, however, we can limit our losses significantly. We also write about a number of other trading tips and tricks in the blogs, which are worth reading before going live.

When to use stop losses?

Setting a stop loss is beneficial for every single trade. The exception to this is when you are taking a cryptocurrency for the long term, and we don't mind the occasional significant negative move.

In the cryptocurrency market, it is best to use stop loss and take profit orders together most of the time and hedge on both sides. On the one hand, you can change it afterwards, and on the other hand, you can guarantee that you won't miss a profitable trade even if you are not monitoring it, and you can minimize your losses.

If you have any questions about stop loss setting, bots or anything else in the crypto world, feel free to contact us!




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