A sustainable trading mechanism requires a planned entry, holding period, and exit plan. We have previously articulated the entry and time frame strategies, however, maintaining a stop loss is also equally important. Profitable trades are often the trades where the trader tends to get carried away with the trend and does not book the profit at the decided target price, this tends to backfire and turns a winning trade into a losing one. This is where the concept of stop loss helps a lot.
What is a stop-loss?
Stop loss simply means putting a stop to your loss. Stop loss is perfect for traders who cannot track the screen and cryptocurrency all day, and those who waive off the trading discipline just because they have a “gut” feeling about the cryptocurrency.
Personal attachment to crypto you trade should never be present. This leads to traders incurring losses a lot of times. When an order has been put in the exchange always gives you an option to put a stop loss order to minimize your losses. Stop loss is not a gateway to profits all the time it is just a free insurance policy in this risky business you put yourself into often when taking margin trades. People should avoid getting too connected with their trade and let go when it does not work, this ensures the trader becomes successful in the long run. Stick to the strategy and be sure of it to work out in the long run and result in favorable trades.
What is the advantage of a stop-loss?
Traditionally a stop loss is perceived as a way to minimize losses in the market but a trailing stop loss can also help you to book healthy profits. Trailing stop loss helps you to ride the profits in a trade while looking to get more and more profits from the trade. Assume a cryptocurrency is trading currently at 105 dollars. Your purchase price is 70 dollars. Now if you had previously put a stop loss at 65 dollars, adjust it to 100 dollars to book 30 dollars of profit for sure and hope the cryptocurrency continues to rally as it did.
In the above chart after the stock rallies by more than 20%, the trader can put a trailing stop-loss at the broken resistance level and continue with the rally. This helps the trader to be protected against a tank of cryptocurrency and yet go for the extra profits in the kitty.
While there are many advantages of stop-loss, a back draw of this system could be that when an intraday trader puts a tight stop-loss he/she might lose out on a quick price fluctuation due to the highly volatile market. This can work against the trader hence the stop loss should be kept after a lot of thought and analysis.
Another important use of stop loss orders is known as a trailing stop loss order, in this order, the trader sets the stop loss above the purchase price and trails the price as it continues to rise. By doing so, the trader is guaranteeing a minimum profit and is safeguarding the profits already earned. This is a very useful trading strategy that is used once the price hits the target set by the trader!
Stop-loss is a very useful mechanism and should be used in almost all intraday trades to safeguard the amount of loss in a trade. A person has to be very mindful of stopping loss to maximize profits in a trade and not give up winning trades every time.
Our platform CoinPanel helps traders in a lot of ways. The platform provides charts of advanced traders which help in understanding the trading mechanism and ideology followed by professionals. This helps in learning and executing one’s own mechanism and perfecting it over time.