Benefits of setting up a stop-loss order
The cryptocurrency market is a space full of volatility and uncertainty. There are some tools and chart patterns that can help traders predict the movement an asset’s price is going to take. However, this high level of volatility delivers some risks that every trader should consider before entering a trade.
Setting up a Stop-Loss order, why is it important?
- Most brokers and cryptocurrency exchanges offer traders the option of setting up a stop-loss order. A Stop-Loss serves as a trigger, which allows the trader to be more precise in his or her crypto trading process. Once the price that was set up by the trader is trigged, then the order will execute as a normal limit order.
- A Stop-Loss order protects the trader from major drops in a coins’ price. Helping trades not to lose profitability and protect the trader’s funds at the same time. This type of order is most common in day traders since it stops the loss by triggering in the exact time an asset falls below a certain point in its price.
How can it be used?
A Stop-Loss order can be used for both selling and buying orders. When buying a cryptocurrency, as soon as the price of the coin reaches the level that the trader set up as a trigger point, then the order will be executed. Which could be useful if the trader was waiting for some upward momentum before buying the asset.
For a selling approach, the Stop-Loss serves as protection for the trader to avoid unnecessary losses. If the assets’ price decreases and reaches the stop price previously set up by the trader, then the order will be executed.
For both buying and selling purposes, Stop-Loss orders can be specified in three different ways. A static price, which means setting up the specific price where the trader wants the order to be executed. A negative offset from the current price of any coin, and a price offset which is based on a percentage of the current asset’s price.
Sleep with peace
As mentioned above, the cryptocurrency market involves a high level of volatility. However, traders can be ready for it and move ahead of the prices fluctuations by understanding existing tools that will help them protect their funds. The Stop-Loss is just one of them, but easily the most important.
Given that cryptocurrency prices move heavily during midnight hours, setting up a Stop-Loss order will ensure the trader is able to open a position and rest calmly knowing that his or her money is protected by this essential feature.