What are the three things every crypto trader needs?
An account to a trading platform, a secure crypto wallet to store your earnings, and a bottle of heartburn medication for all that stress-induced acid reflux caused by market volatility.
But what if I told you that you can swap that bottle of heartburn medication for something more effective and way more lucrative? I’m talking about stop-limit orders. And if you’re planning on spending any significant time trading cryptocurrencies, stop-limits are going to be your new best friend.
What Are Stop-limit Orders?
A stop-limit order is an automated buy or sell order that triggers an action once the currency reaches a specific price. In other words, you choose when you want to buy or sell a cryptocurrency by setting a price on your stop-limit order, and once the currency reaches the price you set, you automatically place a buy or sell order.
There are three components to a stop-limit order:
- The Stop: Your trigger price. When the cryptocurrency reaches this point, your buy or sell order automatically goes into effect.
- The Limit: The limit is the price you put in when your order is triggered. If using stop-limit to buy a cryptocurrency, this is the price you’re willing to pay for the purchase. If selling with a stop-limit, this is the price you sell your currency for. You can set the limit to be the same as your stop price or you can set it higher or lower, based on your predictions of movement in the market.
- The Amount: The amount is simply the quantity of cryptocurrency you wish to buy or sell.
How to Use Stop-limits
Now that we’ve covered the basics, let’s look at a couple of scenarios.
Suppose you’re a trader sitting on 5 BTC at a market value of $3,790 a coin. You look on social media and see some unfavorable news that could negatively impact the cryptocurrency market. You don’t want to lose money, so you create a stop-limit sell order where you sell 2.5 bitcoins, with a stop at $3,510 and a limit at $3,500—because selling just under the limit increases your likelihood of the order going through. And once the price of a bitcoin reaches $3,510 your order goes into effect until it’s purchased on the trading platform.
On the other hand, suppose you’re investing in bitcoin and want to accumulate more coins during the dip. You can then set a buy order where you purchase 2.5 bitcoins at $3,000 and once the price of a single bitcoin drops to (or below) that price, your order is placed on the market and remains active until someone buys it—or until you cancel it.
So, to recap: Stop-limits automate the buying and selling process on exchanges. They can be used to sell off cryptocurrency during bear runs so that you don’t lose your profits, or they can be used to buy more coins in unexpected dips. Incorporating stop-limits into your trading strategy is a great way to protect your investments and maximize profits.
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