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Wouldn’t it be great if all of our crypto tradings gave us quick gains with minimal losses? Whether you’re new to the crypto industry or have experience, you’re very unlikely to answer that in the negative.
Why?
As humans, we’re wired to chase gratification. And in the financial arena, we call them profits. Now, we won’t go over the basic advice such as; Diversify your portfolio or follow bitcoin news! We’re talking about something different. We’re talking about automating your everyday trading routine.
Sound neat? Well then, allow us to introduce you to stop-loss in crypto trading.
What is Stop-loss?
Just as the name suggests, stop-loss is a tool with one purpose – to ‘stop’ your current trade’s loss after a certain limit. The idea stems from stock markets where stop limit and stop-loss orders are common. The primary difference between the two is that a stop-limit order is automated to buy a stock at a lower rate than its current. Stop-loss, on the other hand, designates a set price to sell off your stock (in case of a price drop) as a normal market order. In both cases, you have control over the rate you wish to buy or sell.
Coming over to crypto, stop-loss functions through liquidating your invested assets whenever a market touches a specific price. Stop-loss is usually inbuilt in cryptocurrency exchanges themselves.
To give you a better understanding, try imagining a scenario; You’ve just bought 1 bitcoin for ‘X’ price and set the stop-loss limit to 5%. If Bitcoin’s value goes up, you’ll be profiting, but if it drops down, the stop-loss will sell your investment as a normal market order as soon as the loss percentage hits 5.
So what’s the big deal? I’m still down by 5%, right?
True, you have no control over the initial loss, but what are the chances the price doesn’t drop even more? You could lose more than you even invested in one trade.
If you’re still struggling with getting to know stop-loss, just think of it as a last resort to minimize the potential damage you can take from a single trade or maybe even as the embodiment of being – better safe than sorry.
There are also three main ways of using this piece of tech, but before we go there, let’s touch upon how stop-losses affect the crypto community.
Stop-losses and the crypto trading community
The evolution of cryptocurrency has sparked popularity significantly in recent years. The swift growth of these digital assets has attracted more and more investors. However, a recent survey by Cardiff states that crypto novices are not doing too much homework before they invest.
In essence, the survey found that over 40% of cryptocurrency purchases are from beginners while also stating that about only 16.9% of investors who purchased crypto fully understood its potential and value. Although 33.5% of investors are categorized as having either no knowledge of the crypto space or considered their knowledge as “emerging”.
Types of Stop-loss strategies
Now that you’ve got a basic grip on what stop-loss is, let’s dwell deeper into their different trading techniques. There are a total of 3 stop-loss orders which we’ll run you through.
Complete
The name speaks for itself here. A complete stop-loss will sell all your traded assets after it reaches a set price that you choose. However, it’s more preferable to utilize this when dealing with stable cryptocurrencies rather than volatile ones. The reason being sudden losses. Stable crypto markets can remain low (and drop even lower) for long durations at any predicted price drop.
Coming over to volatile markets, it’s a definite no-go since extreme price jumps (in either direction) is arguably an everyday occurrence news for Bitcoin and crypto. Sure, you may sell all your bitcoins at a loss that may have limited further damage. But if the market jumps back up, you’ll have to buy it back at a higher price, and you know there’s a saying down from the 17th century; “Don’t put all your eggs in one basket” (especially in volatile crypto markets)
Limited/Partial
Another type of stop-loss strategy is limited or partial. This margin sells just some of your assets after a price drop. The remaining assets here can reduce the overall loss and also assure profit from any potential price growth.
This is indeed an effective pick when your crypto price prediction game isn’t at its best. Overall, there’s a 50-50 win-lose risk factor with a fair chance to gain profit too!
Trailing
One of the best and advanced versions of stop-loss is the trailing stop-loss. This crypto stop-loss strategy is never constant and changes as per price movements. It’s simple and easy to use as you don’t always have to manually make alterations after receiving any price change notifications.
Moreover, it smartly minimizes the loss according to the current price, which is truly a flexible way to control and manage losses. A big drawback, however, is that at present, no major cryptocurrency exchange offers a trailing stop-loss order. Nevertheless, don’t lose hope. Crypto exchanges such as WazirX are constantly innovating to add new features. We may not be far off from trying this out ourselves!
Is a stop-loss worth using?
So the idea of a crypto stop-loss strategy sounds decent enough, but there’s one question that’s still bugging you; Is this thing worth it?
That’s a perfectly normal question, and yes, there are aspects of this tool that can be unfavorable for many traders.
You see, the thing is, stop-loss in crypto trading is used when things don’t go according to your crypto price prediction. However, before you can improvise your current strategy during a loss, a stop-loss can simply sell your assets, forcing you to plan your overall strategy once again. For a lot of people, the thrill of trading is the most important part.
Even if the thrill of trading isn’t your thing, a stop-loss can still stir up problems for you. As mentioned earlier, if you’ve set a crypto stop loss percentage at around 5% (which can be typical daily movement for many crypto markets), your assets get sold immediately, leaving you in a worse position than before. Crypto ‘whales’ also cause shifts in the price at times and recover it just as quickly too.
Put simply, stop-loss is a good backup tool if you want to give it a try, but we wouldn’t recommend using it for every single trade regardless of one’s experience in crypto trading.
Conclusion
To conclude, before making use of stop-loss in crypto trading, you must be fully aware of its procedures and how it can be operated efficiently. We hope you’ve at least got a basic overview of how stop-loss in crypto works now. Keeping in mind that profits are a priority for any trader, it’s crucial to acquire proper knowledge before applying these trading techniques. Let us know if you think stop-loss is worth a try and if you’ve got other trading strategies up your sleeve!
Further Reading:
Will crypto markets get less volatile?
Best Bitcoin Trading Platform in India 2021
How to Buy Bitcoin in India in 2021
12 cryptocurrencies you should buy and hold in India 2021
All you need to know about scalping or scalp trading in crypto
A Guide to Crypto Margin Trading: Definition, Pros, and Cons
Frequently Asked Questions
How To Invest In Cryptocurrency?
There are two ways of investing in cryptocurrency, mining and via exchanges. Cryptocurrency mining is considered the procedure of verifying and adding transactions to the blockchain public ledger. Another option is via cryptocurrency exchanges. Exchanges generate money by collecting transaction fees, but there are alternative websites where you can interact directly with other users who want to trade cryptocurrencies.
Can I Invest In Cryptocurrency?
Yes, with exchanges like WazirX, you may invest in cryptocurrency in India. To begin, go to the WazirX website and register. After that, you will receive a verification email. The link received by verification mail will only be available for a few seconds, so make sure you click it as quickly as possible. This will successfully verify your email address. The following step is to set up security, so choose the best solution for you. After you've set up the security, you'll be given the option of continuing with or without completing the KYC process.
What Is Virtual Currency?
Virtual currency is a type of uncontrolled digital currency that can only be used online. It is exclusively stored and transacted using designated software, mobile or computer applications, or unique digital wallets, and all transactions are conducted through secure, dedicated networks. Because digital currency is just currency issued by a bank in digital form, virtual currency is not the same as a digital currency. Virtual currency, unlike ordinary money, is based on a trust structure and cannot be issued by a central bank or other banking regulatory organization.
What Is Cryptocurrency?
A cryptocurrency is a digital currency secured by encryption, due to which chances of activities such as counterfeiting and double-spending taking place get close to impossible. Cryptocurrencies get created on blockchain technology ( a distributed ledger enforced by a distributed network of computers). Cryptocurrencies are unique in that they do not get issued by any central authority. The term "cryptocurrency" comes from the encryption techniques used to keep digital currencies and the network safe.
Is Bitcoin And Cryptocurrency The Same Thing?
Bitcoin is a cryptocurrency that was designed to facilitate cross-border transactions, eliminate government control over transactions, and streamline the entire process without third-party intermediaries. The absence of intermediaries has resulted in a significant reduction in transaction costs. Satoshi Nakamoto, the creator of Bitcoin, created the first cryptocurrency in 2008. It began as open-source software for money transfers. Since then, plenty of cryptocurrencies have emerged, with some focusing on specific fields.
Which Cryptocurrency Is Best To Invest In 2021?
Many altcoins are flourishing to invest in. Some cryptocurrencies with great potential are Ether, Ripple, Tron, and more. Investors are trying to diversify their portfolios and are flocking to the leading cryptocurrencies. Many growing businesses are already accepting cryptocurrency as acceptable payment methods.
Is Mining Cryptocurrency Legal?
Cryptocurrency mining can be time-consuming, expensive, and sporadically profitable. Mining has an appeal for many cryptocurrency enthusiasts as miners are paid directly with crypto tokens for their efforts. The legality of cryptocurrency mining is dependent on where you live. In India, there is no restriction on crypto mining.
Who Invented Cryptocurrency?
Satoshi Nakamoto invented cryptocurrencies and the technology that makes them function in 2009. The presumed pseudonymous individual or persons who invented Bitcoin used this identity. In addition, Nakamoto created the first blockchain database. Even though many people have claimed to be Satoshi Nakamoto, the person's identity remains unknown.
What Is Crypto?
Crypto or a cryptocurrency is a digital currency protected by cryptography, making counterfeiting and double-spending nearly impossible. Blockchain technology is used to produce cryptocurrencies (a distributed ledger enforced by a distributed network of computers). Cryptocurrencies are distinct in that a government does not issue them. The word "cryptocurrency" refers to the encryption methods employed to keep digital currencies and the network secure.
What Are The Best Cryptocurrencies To Invest In?
The best cryptocurrencies to invest in would be the ones you study and analyze in detail. Some of the most popular cryptocurrencies include Bitcoin, Ethereum, and many altcoins such as Tron, Ripple, Litecoin, etc.
Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.
