When you start trading cryptocurrency online you will come across many tools — Limit, Market, Margin trade, Stoploss, Trailing stop and many more. Today we are talking about Stop Loss and how to use it efficiently with best practice. Using Stoploss the correct way can maximize your profit.
Using the right tools while trading is really a key to success. You can really book your fortune while trading without doing much. If you are using the wrong tools and don’t know their right functionality, then chances are you might lose your trade.
What Exactly is Stop Loss?
Stop Loss is a trading bid which is placed to Sell or Buy a particular trade only when a price reaches a specified level.
You can understand more clearly by the given below image.
How Stop Loss is Different that Limit Order?
They sound similar and in the beginning, but they are not. This is the most confusing term when we learn about stop loss.
Note that: Stoploss order can be put in the situation when you are uncertain about the market and need to sell your coins at the price if the coin dumps or you need to buy if the coin sudden pumps. Whereas, Limit orders can be placed when you want to sell your coin high or buy low.
Let’s understand it with an example.
Sell Stop Limit Order
Let’s imagine that you bought “xyz” coin at 700 satoshi. Now the price went up and surge to 1000 Satoshi. Now you have 2 choices, either you sell it now and take profit or you wait until it goes higher, so you can take max profit. But how can you secure your profit at the current stage? Yes there is a solution to this— This is where a Stop Loss is used, you can set Stop limit of “900 Limit and 900 Stop” — this means only active your sell order once the price drops to 900 satoshi.
Note, if you place a normal Limit order here then the order will sell your coin instantaneously because the price is already greater equals 900.
Hence, a StopLoss (Stop Limit with the same Limit and Stop Value) can secure your trade. Now you can go on vacation without worrying about the trade. If it hits 900 your coins will sell automatically and if it goes up you can later cancel the open order and can continue trading.
Buy Stop Limit Order
Similarly, imagine if you are planning to buy a pqr coin but you are uncertain about the market. So imagine the current price of pqr coin is 1000 satoshi and you don’t know if the coin will goes up or down. If you set a StopLimit Buy order slightly above at 1100 then it will buy your coin if the price shoots up and hit 1100 your coins will automatically fill at 1100 and you can enjoy coin surge. Later you can sell that particular coin higher if the price goes higher.
Note, if you set a Buy limit order at 1200 will buy that coin instantaneously and your 200 satoshi will go to trash.
—Limit order is placed where you want to buy at low & Sell at high.
—Stoploss is used in the uncertain conditions about the trade if the price drops suddenly or surge suddenly. Mean quickly Sell if price drops and quickly Buy if price surge.
Advantage Of Using Stop Loss
- Can be used to protect the loss.
- You can raise stop-loss every time the price goes up to book more and more profit.
- Helps monitor multiple deals
- Allows you to decide what amount you are willing to risk
Disadvantage of Using Stop Loss
- Could end up dealing too short
- Something confusing to use
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