Why are stop-losses important when trading crypto?

If there’s one trading tool you need to succeed in trading crypto, it would be setting stop-losses. To have a profitable experience when trading digital currencies like Bitcoin and Ethereum, you need to prevent significant losses in volatile trades, which is quite common in the crypto market.

What is a stop-loss order?

A stop-loss order works by automatically closing a crypto position when the price hits a pre-determined level. Stop-losses are essential for risk management; traders can calculate what position size to take and how much money to risk in a single trade.

A large trading position could potentially wipe out most of the gains you’ve made. The best stop-loss strategy is to set them for every trade you have, especially when you’re day trading crypto!

The problem with setting stop-losses on crypto exchanges

Let’s say you were trading Bitcoin (BTC), and you buy into the market at the price of $58,000. You decide that you do not want to keep holding BTC if its price falls to $57,000 and want to sell and close the position at this level.

If you decide to close the position manually, you would have to follow and monitor the market. This means that if you were trading on a crypto exchange, the only possible way you could do this is by setting price alerts, which tell you when the crypto hits a specific price.

You would then need to sell the crypto as soon as it falls to $57,000, but there could be delays in the market when trading manually — which could be costly.

In this case, it would be a better option to place a stop-loss order to close your trade if the market moves unfavorably to prevent heavy and further losses.

However, if you set a stop-loss order on the crypto exchange, your balance is blocked — meaning that you can’t set an order to sell your Bitcoin and a higher price, guaranteeing a profit. This means that you would have to set another or several price alarms, notifying you of when Bitcoin hits prices at profitable levels above $58,000.

CoinPanel: The best of both worlds

The best crypto trading strategies would require understanding how much risk you will take. You are going to have to calculate your position size.

Position sizing is an essential concept in trading, especially when you are day trading cryptocurrencies.

Ideally, to become a better cryptocurrency trader, you will need to use both stop-losses and take profit orders at the same time to aim to make gains while minimizing losses. To do this, you would need a better trading tool — like CoinPanel — that would enable this feature.

CoinPanel is an automated crypto trading platform, which allows you to set and plan your own trades, including entry, stop-losses, and profit-taking orders, all at the same time.

Automated crypto trading is essential as it’s pretty impossible to monitor the market 24/7. To start your journey with automated Bitcoin trading, all you need to do is connect your exchange account to CoinPanel, and you can begin to properly mitigate risks in the market.

Try out our platform now!