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Stop-loss
Stop-loss in cryptotrading is an order to the cryptocurrency exchange to automatically open an order for the sale of the cryptocurrency when its price falls to the point specified by the trader. Stop-loss order — an order placed by the exchange to sell cryptocurrency at the specified minimum price.
Description
Stop-loss is used by many traders who trade on different time segments using different methods and instruments.
Actively stop loss is used in scalping - the fastest possible trade. Scalpers on each transaction receive a small profit, so it is important to limit losses: otherwise, large losses against the background of small profits will bring them to a minus. Therefore, scalpers set the stop-loss price as close as possible to the current one. Thus, the stop-loss is triggered when the asset falls weakly and scalper losses are minimized.
In a falling market, stop-loss is used everywhere. All traders see that cryptocurrencies are falling, but noone knows how much and how sharply they can fall. Therefore, the maximum allowable loss using stop-loss indicates the majority.
In a growing market, stop-loss is used less frequently, but is more often set than not as simple insurance.
When a trader opens a position, the exchange provides an opportunity to fill the “stop loss” field, and many believe that it is more reasonable to fill it than not to fill it. Filling in the field does not require anything, but in the case of an unpredictable trend reversal can save money.
Types
Stop-loss is used in different ways, in different situations and has several varieties in different classifications.
- Break even stop loss. The price is set at the level of the position opening price. The trader at best receives earnings, at worst - saves his money, as the exchange sells the crypto currency he bought at the same price at which the trader bought it. Feature: this stop-loss can not be specified immediately. The exchanges set the minimum allowable intervals between the stop-loss and the current price of the asset, so the trader will have to wait for the cryptocurrency price to rise by the required number of points, and then shift the stop-loss to the break-even. For example, he buys a cryptocurrency for $50, at the time of opening a position sets a stop loss of $40. Further, the cryptocurrency is growing, the trader waits for it to rise to $60, and sets a break-even stop loss of $50. This stop loss is applied only in a growing market.
- The trailing stop-loss. Stop-loss price changes depending on the price of the cryptocurrency. Theoretically, it can be adjusted by the trader himself, large exchanges can do it automatically. With the installation of automatic trailing stop prescribed number of points for overcoming of which the stop-loss needs to change. For example, the cryptocurrency has to go up 10 points to make the stop-loss go up; then another 20 points to make it go up a second time, and so on. Often the trailing stop-loss comes to a level, which exceeds the purchase price. For example, a trader bought a cryptocurrency for $50 and set the price of a stop loss of $40. Cryptocurrency rose to $60 - the price of stop loss rose to $50; cryptocurrency rose to $70 - the price of stop loss rose to $60 and so on. Most often, this stop loss is used in a growing market to fix profits: if the price rose to $70, and the stop loss - up to $60, trader will not receive less than $10 profit.
- Fixed stop-loss. The easiest option in this classification. The trader simply determines for himself how much he is willing to lose, sets the appropriate stop-loss and trades. The fixed stop loss is usually used only for insurance, that is, the trader hopes that it will not come to the stop loss.
Another classification involves dividing stop-loss by the amount it affects:
- Full stop loss. Set to the full amount of the transaction. For example, a trader buys a cryptocurrency of $50 and sets a stop loss of $40 - insures all his $50. It is used in small-time intervals; in a stable market, when the risk of sudden sharp falls and subsequent jumps is minimal; in a falling market, when a sharp jump in prices up is unlikely.
- Partial stop loss. It is set on a part of the transaction amount. For example, a trader buys a cryptocurrency for $50, but a stop loss is set only half - $25. He has not insured the remaining $25. It may happen that the cryptocurrency rate will fall sharply, causing the stop-loss to work and close the position at an unfavorable, although acceptable to the trader price. Immediately after that, the rate can also jump sharply, soaring from the stop-loss price of $40 to $70. The trader eventually loses money and misses out potential profits due to the occasional downturn. If the stop-loss will work only on half of the amount, then the trader's losses will be half less. Such a stop-loss is used in very volatile, unpredictable markets, as well as during flat or strong fluctuations, when the price can fall and rise with equal probability.
