Facts About Using A Stop Loss When Investing
There are quite a few aspects that need to be considered when buying crypto. Because of this, it's easy to overlook small things. Using a stop loss order is one of the things that is often overlooked by investors. Almost all investors can benefit from using this tool. Here we'll take a look at why.
Understanding What A Stop Loss Order Is
When an investor instructs their broker to either buy or sell a cryptocurrency when it's at a certain price, then that is known as a stop loss order. The purpose of this tool is to reduce the potential loss to an investor. An example of how an investor may use this strategy is to order that if the price of the crypto's invested in were to fall to more than 10% below the purchase price, then the broker would need to sell the stock to limit how much loss the investor experienced.
If an investor purchases Bits of a Bitcoin and then it falls below $11,500 per/BTC then the stop order would activate a sale. The investor would instruct their broker to sell if the price were to fall below $11,499 per/BTC This protects them from experiencing too big of a loss. Although personally, you should only be interested in acquiring more BTC, regardless of the price.
SUPER IMPORTANT~Stop Loss Strategies
Using this strategy is a way to invest which allows the buyer to be able to buy crypto currencies without having to monitor them every day. It's very convenient for the person buying cryptocoins because they can go about their usual life or go on a vacation and they don't need to worry about checking what the market is doing regularly. It allows them to go without checking their portfolio for longer periods of time.
One of the pitfalls of the strategy is the fact that a project can take a dive in the short-term which would activate the selling off of the price just to have the price quickly return. One of the main strategies of using a stop-loss order is to set the sell order at a percentage that is more than what it commonly fluctuates on a day-to-day basis. This means if it quite commonly fluctuates by 10% or even more in any given week, then by setting a stop-loss order of 12% or 15% below the purchase price would protect the investor without requiring the sale of the altcoin unduly.
Putting a stop order of 5% on such an alt-coin would be a poor strategy. It would cause the selling of your position unduly and would make it necessary to pay a commission for executing the sale. This would cause an unnecessary loss. Each individual would have to consider what is best for them as there are no hard-and-fast rules.
There are some with which you may not be able to place a stop-loss order. It'll be necessary to be aware of these in order to invest accordingly. An OTC bulletin board or out of the top #100 cryptos is one of the examples that you typically wouldn't be able to put a stop-loss order on.
Is A Stop Loss Order Recommended For Most Investors?
YES! Hell yes, In terms of trading, whereas long term investments, perhaps not. So you must know the difference between trading and investing. As well as the risk exposure you are willing to put on the table with and walk away.
This strategy is one that can be used successfully by the majority of investors. It helps to prevent an unfavorable investment. One of the big advantages of this strategy is the fact that a typical investor doesn't need to monitor their portfolios every day. As stated above, its biggest drawback is the fact that prices often fluctuate and if the strategy is not followed well, then it could cause the sale of your position unnecessarily.
This Strategy Is Not Only For Limiting Losses
Even though the name suggests that it's primarily used to prevent a loss, there is another way to use this strategy. It can also be used to help an investor lock in profits. With this strategy, a stop loss is ordered to buy a crypto if it falls below a certain percentage. This takes advantage of prices that commonly fluctuate. When the stock temporarily falls below a certain percentage and you have an order to buy at that amount, then the broker will activate the purchase and if the price returns as it typically do, then you've made a profit.
When the price goes up you've capitalized on its profit potential. Of course, you don't actually have those gains until you sell.. Limiting the point at which will be sold allows you to make more certain that you'll get at least some capital gain from the investment.
If you use the strategy with falls below 10% of its current price and then later rebound substantially then you would determine at what point those shares would be sold to ensure that you get a profit. When this strategy is used right it prevents the satoshi price from falling past the point where you take a loss. This strategy is only implemented when the cryptos new price is triggered by reaching the price set on the order. Prices can fluctuate quickly and there can be some difference in the actual sale price from the trigger price.
More Advantages Of Putting In A Stop Loss Order
One of the great points of this strategy is the fact that it doesn't cost anything to use it. You'll only pay a commission if the price of the stop-loss is reached and the cryptocurrency is sold. It is commonly thought of as an insurance policy.
Using this strategy also helps take away emotional decision making. When someone gets emotionally attached to bitcoin they might think that it'll bounce back. If this is how they feel they may procrastinate and not sell it as soon as they should and that might lead to a bigger loss.
Regardless of the kind of investor you consider yourself to be it's important that you have a reason for owning any particular saltcoin. A growth investor will have different criteria from a value investor. Someone who is an active trader will be different still. The biggest thing is sticking to one particular type of strategy to make it work. If you happen to be an investor who believes fervently that they must buy and hold a cryptocurrency then this type of strategy may not work very well.
Investors need to be confident in their strategy and they must see the strategy completely through. Using stop-loss orders as a strategy can help keep an investor on track and remove emotional judgments. It is important to remember that placing a stop-loss order doesn't give you any kind of guarantee that you won't lose money or that you'll make money investing. It will still be necessary to make good investment decisions. Without doing so you are just as likely to lose money whether you use this strategy or not.
This strategy is simply a tool. It's one that far too many investors fail to use. Regardless of whether you want to make excessive losses less likely or to use it as a strategy to help lock in profits, almost all styles of investing can benefit using this strategy. It helps to give your investing an insurance policy. Like any insurance, you don't want to ever have to use it but it's nice to know you have it if you do need it.
(BTW, click here for our overview of the basics of technical analysis)
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