What Is Stop Loss In Crypto Trading?
What is Stop Loss?
Stop-loss is an advanced crypto trading feature that can help you reduce your loss, or at least reduce it significantly. To earn profits from the volatile crypto market, you need to prevent losses.
Stop loss helps traders to set a limit and, when that limit is reached, the crypto position is closed automatically. It allows for risk management to limit and decide the risks a trader is willing to take. To set stop losses for each trade you make is the best strategy, especially for day trading crypto.
Types of Stop Loss
- Complete stop loss
When you set a stop loss to sell all the cryptocurrency that you own when a certain price is reached in case of a downfall in the crypto market, it is called complete stop loss.
- Partial stop loss
When you set a stop loss to sell some part of your crypto when a specific limit is reached in case of a downfall in the crypto market, it is called partial stop loss.
Importance of using Stop Losses
If you own a cryptocurrency and decide to sell it if the price drops to a certain level, then you need to set price alerts for it. But trading manually can lead to delays, which can be costly.
With stop losses, you can automatically close your position when the situation of the market becomes unfavourable. This can prevent heavy losses. It also doesn’t require you to monitor the market position continuously. It sells the crypto when the predetermined limit set by you is reached.
The Downside of it
Now, when you set a stop loss for selling your crypto and the price drops to a certain amount. You cannot simultaneously set an upper limit on it, which means selling the crypto when the price hikes, so as to profit from it.
In order to sell your crypto when the price increases, to earn a profit, you will have to set several price alarms to notify you about it. This can, in the same way, lead to delays and reduce your profit margin.
Final Thoughts
Stop-loss is one of the most important trading tools needed to succeed in crypto trading. It does not imply nullifying your losses but reducing them significantly. It lets you determine the loss you are willing to incur in case of a downfall. So, it removes the factor of an unexpected or unprepared loss.
At Kointrack, we make blockchain technology accessible to people and provide information on the latest trends in the crypto market.
