Stop-Loss orders for crypto trading. Scared money never wins!
In order to be successful in any kind of financial markets you need to have an edge and know absolutely everything about it. But all humans sometimes or often take bad decisions and this is normal, not cool but normal. In order to protect yourself from bad trades, you should use stop order to sell to stop a loss and trailing stop order to sell to secure a profit on an existing long position. You don’t want to fall, of course. But if you do, you will suffer only hurt pride, and not broken bones or worse. In a nutshell, you’ll live to try again.
Before going in advance I would like to explain what is trailing stop because I think nobody knows what that is. A trailing stop order to sell works exactly like this - as the share price rises higher, the stop order rises with it – automatically. A trailing stop order to sell is an order to sell a security when the price falls by a specified amount (Some traders will want to adjust the stop distance so as to maintain a fixed percentage). It is worth noting the mathematical fact that a trailing stop order to sell will get tighter in percentage terms as the price rises. A trailing stop set initially at 10 points below a price of 100 would sell on a 10% downturn; but by the time the price has doubled to 200 (lucky you), the same unaltered trailing stop would require only a 5% downturn in order to trigger.
Figure 1. Example of a stop order to sell.
Figure 2. Example of a trailing stop order to sell
There is no simple onesize fits all answer of saying that stop loss orders should be placed at 5%, or 20%, or at any other distance below (for a stop order to sell) or above (for a stop order to buy) the
market price. In order to figure out what is more suitable for me, I split stop orders within 3 categories:
• “Invest only what you can afford to lose”. In other words – if you can afford to lose 1% of your position, you place stop-loss below 1% below entry point.
• Those based on volatility and support/resistance.
• Mix of both.
So, there are plenty of information about stops and how to use them. But nobody really told me what to to when that as soon as I get stopped out of (or in to) a position, the price immediately reverses. Market makers and other significant market players know that a large number of traders will place stop-loss orders at obvious support levels, and they might be motivated to force the price down just that little bit further so as to trigger your – and all the other traders’ – stops. How to avoid this?
Place your stop loss based on volatility. Independently of the time frames that I am using, I use Average True Range Index (ATR) and calculate volatility by this formula:
Volatility (%) = (ATR/ Price) x 100
Let say, today Bitcoin volatility is 6%. You may split volatility stops which are better suitable for your setup.
0.25 Volatility - Hard Stop. I never used.
0.50 - Tight Stop. I use that to go aggressively against the trend.
0.75 - Regular Stop. When the price is at support/resistance
1.00 - Brave. For break out trades.
What are the best stopLoss for you? Figure it out by trial and error. Here is what i have found by my own experience.
The market makers and other professional participants know that amateur traders tend to set stops at (or very close) to psychological boundaries, such as 10000 on the It should be obvious that a price of 10000 is psychologically more significant than a price of 8500, which in turn is more significant than a price of 6432 but this very much depends on the timescale you are trading.
Figure 3. Example of the trade using Stop Loss Order
Lets say you want to go short on January 28. Volatility at that day was 12,8%. Price is at resistance so stop wide will be 12,8 * 0.75 = 9,65% . My stop will be 1159 points above 12000. What I am not willing to lose 10% but only 5? Then I have 2 choices, I do not take the trade or I reduce the size of the position. What if I am willing to lose 30%? I go 3x on margin.
Figure 4. The same trade with trailing Stop
I use mental trailing stop, write it down and execute the trade one the price reaches the extreme.
I do not think whether it's good or bad decision, I just do.
Check yourself before you wreck yourself. Trade like a pro.
Before going in advance I would like to explain what is trailing stop because I think nobody knows what that is. A trailing stop order to sell works exactly like this - as the share price rises higher, the stop order rises with it – automatically. A trailing stop order to sell is an order to sell a security when the price falls by a specified amount (Some traders will want to adjust the stop distance so as to maintain a fixed percentage). It is worth noting the mathematical fact that a trailing stop order to sell will get tighter in percentage terms as the price rises. A trailing stop set initially at 10 points below a price of 100 would sell on a 10% downturn; but by the time the price has doubled to 200 (lucky you), the same unaltered trailing stop would require only a 5% downturn in order to trigger.
Figure 1. Example of a stop order to sell.
Figure 2. Example of a trailing stop order to sell
There is no simple onesize fits all answer of saying that stop loss orders should be placed at 5%, or 20%, or at any other distance below (for a stop order to sell) or above (for a stop order to buy) the
market price. In order to figure out what is more suitable for me, I split stop orders within 3 categories:
• “Invest only what you can afford to lose”. In other words – if you can afford to lose 1% of your position, you place stop-loss below 1% below entry point.
• Those based on volatility and support/resistance.
• Mix of both.
So, there are plenty of information about stops and how to use them. But nobody really told me what to to when that as soon as I get stopped out of (or in to) a position, the price immediately reverses. Market makers and other significant market players know that a large number of traders will place stop-loss orders at obvious support levels, and they might be motivated to force the price down just that little bit further so as to trigger your – and all the other traders’ – stops. How to avoid this?
Place your stop loss based on volatility. Independently of the time frames that I am using, I use Average True Range Index (ATR) and calculate volatility by this formula:
Volatility (%) = (ATR/ Price) x 100
Let say, today Bitcoin volatility is 6%. You may split volatility stops which are better suitable for your setup.
0.25 Volatility - Hard Stop. I never used.
0.50 - Tight Stop. I use that to go aggressively against the trend.
0.75 - Regular Stop. When the price is at support/resistance
1.00 - Brave. For break out trades.
What are the best stopLoss for you? Figure it out by trial and error. Here is what i have found by my own experience.
The market makers and other professional participants know that amateur traders tend to set stops at (or very close) to psychological boundaries, such as 10000 on the It should be obvious that a price of 10000 is psychologically more significant than a price of 8500, which in turn is more significant than a price of 6432 but this very much depends on the timescale you are trading.
Figure 3. Example of the trade using Stop Loss Order
Lets say you want to go short on January 28. Volatility at that day was 12,8%. Price is at resistance so stop wide will be 12,8 * 0.75 = 9,65% . My stop will be 1159 points above 12000. What I am not willing to lose 10% but only 5? Then I have 2 choices, I do not take the trade or I reduce the size of the position. What if I am willing to lose 30%? I go 3x on margin.
Figure 4. The same trade with trailing Stop
I use mental trailing stop, write it down and execute the trade one the price reaches the extreme.
I do not think whether it's good or bad decision, I just do.
Check yourself before you wreck yourself. Trade like a pro.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.