On March 31, Bitcoin’s price dropped by almost 3% in less than an hour, leading to $600 million worth of leveraged positions being liquidated.
While Bitcoin was attempting to climb to the $60,000 level resistance, it was rejected. A sudden BTC crash occurred during the early hours of the European trading session.
As always, a flash crash in the Bitcoin price would lead to liquidations, and this time, over $600 million of leveraged positions were wiped out. Most of the liquidations were long positions, accounting for 95% of the total amount.
Bitcoin, unfortunately, did not break through the $60K resistance and crashed to below $57K. These types of liquidations were forced liquidations, meaning an involuntary conversion of the asset into cash or cash equivalents, including stablecoins.
When a trader is unable to fulfill the margin requirements for a leveraged position, forced liquidation occurs. This can apply to both margin trading and futures trading.
Why do I need to use a stop-loss when trading crypto?
Since cryptocurrency markets are extremely volatile, especially whales — large cryptocurrency holders — can move the market easily, you could incur massive losses.
The only way to tackle massive losses is to manage your risks by setting stop-losses. For every trade, it’s important to set stop-losses to ensure you are only risking a certain amount of your capital if the market crashes or moves unfavorably.
Why can’t I just sell when the market crashes?
The cryptocurrency market moves very quickly, and any delay with placing a stop-loss order could be detrimental. Additionally, unless you can guarantee that you can be awake to watch the markets 24/7, it’s also possible you will miss out at times when the market crashes.
Further, there is no guarantee that the market will recover quickly, and if you keep holding onto the asset, you might come across opportunity costs. This means that while you are holding an asset that is losing its value, you miss out on the opportunity to trade other cryptocurrencies that could potentially perform better.
On top of that, emotions also come into play when the market crashes, which could also affect your trading judgment. Instead, you can set your stop-loss in advance, as well as your take-profit orders ahead of time, so you can stick with your strategy without letting your emotions affect you.
Since the cryptocurrency markets are known for their unpredictability, it’s essential to protect your wealth first.
The benefits of automated crypto trading
Having a personal trading assistant can help you execute your strategies carefully — and by an assistant, I don’t mean a person.
CoinPanel, a crypto trading automation platform, acts as your personal trading assistant that runs 24/7. Strategies that you have drawn up could be quickly thrown out the window when emotions kick in, leaving you with huge consequences.
With automated crypto trading, you can set clear parameters for when you want to enter and exit positions. CoinPanel’s full trade feature allows you to be able to set an entry — at which price you would like to buy an asset, and exits — your stop losses and take-profit orders.
This guarantees that you will stick to your strategy, and avoid any delays in the market as opposed to if you manually put in your trades during a flash crash.
Check out CoinPanel’s platform to start enjoying the benefits of automated crypto trading!