Trading in digital assets is very profitable but sometimes it can be horrifying. As a crypto trader or investor you may be heard or come across some terms like Stop orders, Stop Loss, Stop Limit etc. Using these STOP triggers in cryptocurrency trading will save you from getting into a huge loss. In case if you do not know “How To Use Stop Triggers”, you might lose the chance of earning even a small profit. Here, we will discuss the most popular Stop Trigger which is Stop Loss.
What is Stop Loss?
Stop-loss is one of the common way used to limit one’s loss when investing in digital currencies. A Stop Loss is a type of order that is placed by a trader with a broker to sell an asset automatically when it reaches a specific price. This is the most popular method among cryptocurrency day traders. Stop-loss puts a stop at your loss once the asset you have invested in starts falling below a specific point. When the limit is reached, assets will liquidate automatically to protect you from excessive loss.
If we break it into more simple words, stop loss is used to buy or sell a coin once its price reaches a certain price which is called Stop Price. This tool is very useful to limit the losses and maximize profits. Stop Loss sets you free from scrutinizing the cryptocurrency prices again and again and take trading decisions instantly. There are 3 types of Stop Loss that you can use, they are as follows:
Full Stop Loss
Focus on both risk and reward scenarios while setting the Stop Loss Trigger. This is very useful in the stable crypto market to avoid unforeseen price fluctuations. When you set a full stop limit, your assets will be automatically sold when prices drop drastically from the set limit. Here the advantage is that you save yourself from losing more and can buy that coin back at a lower price.
Partial Stop Loss
Liquidate the set proportion of digital assets when Partial Stop loss is triggered. This is similar to Full Stop Loss, the only difference is that you set a part of holdings (say 40%) to be sold when price touches the predefined limit. It is used in a highly volatile market where you can take advantage of the remaining holdings when the prices rise. You can even buy back coins at a lower price which will result in less loss as compared to when you would buy back through Full Stop Technique.
Trailing Stop Loss
Here, traders only need to set the trailing distance which is the price of current crypto assets and stop limit. The stop loss price will be set according to digital assets’ price fluctuation. In case the prices of cryptocurrencies increases, the price of stop loss also surges. Vice versa, if the price of crypto assets’ drops, the value of stop loss will not change and a stop loss will be triggered when defined set limit is hit. Trailing Stop Loss allows traders to cap the maximum loss despite how far trend is in traders’ favour.
Till now, it is understood that Stop loss saves you from bearing the excessive loss. But it is not limited to only restricting your loss, it has more benefits and flaws as well. Let us have a look at them.
- Protect against excessive loss
- Help in monitoring multiple deals
- Very easy to implement
- Executes automatically
- Allow you to set a stop loss limit what amount you want to risk
- Permit you to increase the limit of stop-loss every time when asset’s price rises to ensure maximum profit
- Prevent a bad situation from turning worse
- It could end up making a deal very short which will limit the potential of your profit-making.
- This is something that is confusing to use as it is hard to decide which rate to set.
So now, we have understood what does stop loss mean in crypto world. You can now easily use stop loss to limit your losses by using its 3 different techniques and your trading strategy. By using stop loss, you already book some profits for yourself. You do two works at the same time ie, minimize your risks and maximise your profits.