What's a SL Bitcoin Order? and Factors to Consider When Setting
Stop Loss Bitcoin Order is a type of order which is positioned after opening a trade that is designed to minimize losses if the btcusd trading market moves against you.
It's a preplanned level of closing a losing trade position & it is intended to control losses.
A stop loss is an order placed with your cryptocurrency trading broker that will automatically close your bitcoin trade transaction when it reaches a predetermined bitcoin price. When set level is reached, your open trade is liquidated.
These cryptocurrency orders are designed to cap the amount of money which one-can lose: by exiting the transaction if a specific bitcoin price that is against the trade is reached.
Regardless of what you might be told by others, there's no question about if these orders should or should not be set - these orders should always be set.
One of the most troublesome things in in Bitcoin is setting these orders. Put the stop loss too close to your entry bitcoin price and you're liable to exit the trade position because of some random market volatility. Put it-toothe-stop-loss-order-too far away & if you are on the wrong side of the market trend, then a small loss might turn into a big one.
Critics will point out several disadvantages of these orders: that by placing them you are guaranteeing that, should your open position move in the wrong direction, you'll end up selling at lower bitcoin trading prices, not higher.
Skeptics will also argue that in setting stops you are vulnerable to exit a transaction just before the btcusd market moves in your favor. Most investors have had the experience of setting a these orders and then seeing the bitcoin trading price retrace to that level, or just below it, and then go in the direction of their original market bitcoin trend analysis. What may have been a profitable trade transaction rather turns into a loss.
Experienced traders always use stop loss orders as they are an important part of the discipline that is required to succeed because they can prevent a small loss from becoming a big one. What's more, by purposefully putting these orders whenever you enter a position, you end up making this important decision at the point in time when you are most objective about what is really happening with btcusd market, this is because the most unbiased analysis is done before entering a trade position. After entering the btcusd trading market one will tend to interpret the btcusd trading market differently because they have a bias towards one-sidea-particular-side, the direction of their analysis.
Unexpected news can come out of nowhere and significantly affect the bitcoin price: this is why it is so important to have a stop loss. Its best to cut losses early when a position is going against you, it is best to cap your losses immediately rather than waiting it to become a big one. Again, if you set your stop loss orders when you're opening a trade transaction, then that's when you're most objective.
A key question is exactly where to place this order. In other words, how far should you place this below your purchase bitcoin trading price? Many traders will tell you to set pre-determined - max acceptable loss, an amount that is based on your account balance rather than use technical cryptocurrency indicators.
Professional money managers advice that you shouldn't lose more than 2 % of your trading account equity on any one single bitcoin trade. If you have $50,000 in capital, then that would mean the maximum loss you should set for any single trade is $1,000.
If you opened a bitcoin trade, then you would cap your trading risk to no more than $1,000. In which case you'd set your stop loss order at the number of pips that are equal to $1000 and would have $49,000 left in your account if you closed the trade transaction at the maximum loss allowed. The topic of Bitcoin risk management is wide & it's discussed under money management topics.
Factors to Consider When Setting
The most important question is how close or how far this order should be from the bitcoin price where you entered the position. Where you set will depend on several factors:
Because there are no guidelines cast in a stone as to where you should put these levels on a crypto chart, we follow general guidelines that are used to help put these levels correctly.
Some of the general guidelines used are:
1. Risk - How much is one willing to lose on a single transaction. General rule is that a trader should never lose more than 2 percentage of the total account capital on any one single transaction.
2. Volatility - this refers to the daily bitcoin trading price range. If bitcoin regularly moves up and down in a range of 100 pips or more over the course of the day, then you can't set a tight stop loss order. If you do, you'll be taken out of the trade position by the normal market volatility.
3. Risk to reward ratio - this is the measure of potential reward to risk. If the btcusd market conditions are favorable then it's possible to comfortably give your trade more space. However, if the btcusd market is too choppy it then becomes too risky to open a transaction without a tight stop then don't make the trade at all. The risk to reward isn't in your favor and even placing tight stop orders won't guarantee profitable results. It would be more wiser to look for a much better trade transaction next time.
4. Position size - if the position size opened is too big then even the smallest decimal bitcoin price movement will be fairly big in percent terms. This means that you've to set a tight stop which might be taken out more easily. In most cases it is better to adjust to a smaller trade position size so-as-tosothat-to give your trade transaction more room for fluctuation, by placing a fair level for this order while at the same time limiting the risk.
5. Account Capital - If your account is under-capitalized then you'll not be able to set your stops accordingly, because you'll have a large sum of money in a single trade position which will constrain you to put very close stops. If this is case, you should think seriously about whether you have enough capital to trade Cryptocurrency in the first place.
6. Market conditions - If the bitcoin trading price is trending up-ward, a tight stop may not be necessary. If on the other hand the bitcoin price is choppy and has no clear direction then you should use a tight stop loss order or not open any positions at all.
7. Chart Timeframe - the bigger the chart time frame you use, the bigger the stop should be. If you were a scalper trader your stops would be much tighter than if you were a day or a swing trader. This is because if you're using longer chart timeframes & you figure out the bitcoin trading price will be move upward it doesn't make sense to set a very tight stops because if the bitcoin trading price swings just a little, your order will be hit.
The method of setting that you choose will mostly depend on what type of trader you're. Most oftenly used technique to determine where to set is - resistance & support zones. These areas give good points for setting these stop orders as they are the most reliable zones, because the support & resistance levels won't be hit many times.
The technique of how to set these stops that you select should also follow the guidelines above, even if not all those who apply to your bitcoin strategy.