February 8, 2023

Stop loss in cryptocurrency trading: how to set correctly?

Stop loss in cryptocurrency trading: how to set correctly?

Often they ask me a question about my marginal positions that I post on the channel - why stops I often have less than open transactions?

I answer - not all stops are equally useful and noteverywhere they are needed. I do not think that you should always put your feet. This is a useful tool to limit losses, but you need to be able to work with it, otherwise the stop turns into a way to get these losses.

Probably my words about not needing feetalways put, contradict everything that you heard before? But I am not a theoretician, but a practitioner, and the tactics of working with feet is based on personal successful experience (many years in the Forex market and the third year in the crypto market).

When I traded in the forex market, services forForex trading in the Russian Federation and post-Soviet countries was provided by "dealing centers" - companies that played against the client and were interested in his losses. Nevertheless, all the training courses of these companies (primarily market leaders such as Alpari, Teletrade and Forex Club) taught that you need to put stops all the time.

Here I first thought: is stop loss limitation, or the right way to get it? Based on the logic, "if Teletrade teaches something, then this is definitely not in the interests of the client." And then one of my friends, working in Teletrade for VIP clients, got me an insider. All customer losses for the month are 78% triggered stops. And only 22% are merged deposits. The theory has been confirmed by practice. Stop, which should be a protection against loss, actually becomes the main tool for generating this loss.

There are no companies on the cryptocurrency marketagainst the client. Classic exchanges do not care if you get profit or loss by trading with other customers (we don’t speak for margin trading with leverage yet, this is a separate issue). But everyone in the subject knows that often the price purposefully goes to the stop zone, knocks them down, and then turns around. Stops are often the target of large players, here is one of the latest examples: it was on the Bitstamp exchange.

I was then in the market, and if I had then stoodstop, then losses would be inevitable. And the price returned to 8000 a couple of days later. Since I did not have a stop, and there were pending buy orders on the bottoms, instead of a loss, a good profit was made. So think about whether we were taught.

But how to limit losses if stops are not set? Mistakes in the market are inevitable and happen to everyone, how to protect the deposit in this case?

To do this, you need to understand when it is necessary to place stops, when possible, and when this is not necessary. And what other ways are there to limit trading risks.

It is necessary and necessary to put stops in the following cases:

  • You are trading against the main trend. For example, now open short positions on Bitcoin. Why do this, the question is already different and I have no answer to it. But if you do, then be sure to stop.
  • You bought a coin with low capitalization and liquidity (below the top 100). Here, too, a stop is required, otherwise you can stay in it forever, or get X, but loss.
  • You saw that the coin has updated the maximum or is near it and decided to buy it, in anticipation of further movement. Even if this coin is from the TOP-30 and the market is growing, it is better to put a stop too.
  • The market has been in flat for a long time, directionthe main trend is missing. As it was in February-March 2019 according to Bitcoin, for example. You trade from the borders of the channel, which have been relevant for a long time. Beyond the boundaries of the canal, the feet should be standing.

Of the items listed in 1-3, I do not do it at all and do not recommend it to you. Even with the feet. Part 4 - the option is quite working, I often use it, stops in this case are necessary.

An article by Pavel Gromov, the author of the channel “The Chief on the Crypt”. https://t.me/TOPCRYPTOMAIN