As a trader, one of the most fundamental things to save your crypto investment portfolio is knowing when or where to place your stop-loss order.
Why?
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Because no one likes losing money and the stop-loss order sets the floor level for your position in the market. There is a balance to be found and it’s unique to each trader. If the settings are too far apart, you risk losing a lot of money, but if they’re set too close, you can be bumped out of a position rather quickly.
Let’s say that you wish to sell your Bitcoin and set the stop-loss order at 10% below the current price, your potential loss is now limited to 10%.
Ok. That seems easy enough to do, but the trading dilemma is more about finding that Goldilocks zone where your risk to reward ratio doesn’t damage your portfolio but still gives you enough leverage to potentially make gains when the market recovers.
Let’s discuss placing stop-loss order based on support.
Too Tight
Many traders complain that their stop-orders are stopping them out. One reason might be that the stop-loss order is too tight and you’re probably adverse to any kind of loss.
This speaks a bit to your trading style. More aggressive traders will have a broader range but too-careful traders often lose out because they don’t want any risk. Honestly, if you’re in the latter, trading might not be your thing.
So here’s what happens when your stop-loss position is too tight, you get booted by the volatility “noise” which pings your position, triggers it, and then keeps going…without you. If this happens a lot then you might want to reduce the size of your position and put a new stop under that.
Under Support
Common reasoning and textbook wisdom says you should place your stop-loss order just under the market support level.
As an example, let’s say you have a support level of $20,000.
Conventional wisdom says to put your stop just under $20K – maybe at $19,700.
Now this might not always be the best place for your stop-loss because that’s often where the market analysts probe for potential liquidity. Of course, this is purely speculative but people can drive the market based on any number of things. Placing your stop-loss at this danger-zone is not really good for you.
One reason this is dangerous is that the people who are looking to buy in the market are on the lookout for those who are willing to sell at that a level within their range. If you’ve watched the orders fly in and out, there are traders who are testing the levels of price ranges where they can take the most advantage of the market. That is another level of noise that will ping you out before you’re ready.
Way Under Support
The better thing to do is to place your stop-loss way under support. Let’s say you have a support level of $20,000. You can set your stop at a range between $17,000 and $18,000, which is considered a safe distance where it’s not too tight and enough distance away where you won’t get pinged out by the noise. This is where the confident traders play.
Bear in mind that there is no formula to follow but the idea behind going way under support is by extending your target to make it work for you, which may mean reducing your position size and being in for the long game.
Another thing to consider is the trailing stop based on the Moving Average price using smaller blocks of your assets. What does that mean?
In layman’s terms, don’t put all your eggs into one basket. If you’re trading a crypto asset, set the levels where you’re comfortable and have a few positions in play. This might help you zone in on the latest market trend and catch good opportunities as they arise.
Remember, these stop-loss positions are not intended for spot or day traders. These are more for the long-term investors.
Disclaimer
Content provided by CryptoTraderNews is for informational purposes only, and should not be construed as legal, tax, investment, financial, or other advice. All information is of a general nature. As always, there is risk with any investment. In exchange for using our products and services, you agree not to hold CryptoTraderNews Pro, its affiliates, or any third party service provider liable for any possible claim for damages arising from decisions you make based on information made available to you through our services.
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