Are you interested in investing your money in Bitcoin? It seems that everyone has started to trade digital currencies since its surge in popularity last year. Early investors have seen their money multiply by a hundredfold, prompting more and more people to enter the market. But you can’t expect to get rich in a blink of an eye, particularly if you plan on day trading. You need to be able keep pace with the Bitcoin market as it changes consistently. To keep losses to a minimum, you need to have a thorough understanding of how stop losses work.
First, you should familiarize yourself with the two kinds of stop orders: stop-market orders and stop-limit orders.
A market order is executed when Bitcoin hits a particular price point. For example, you can place a buy-stop market order for $11,250 if the current Bitcoin price is $11,000. Your market order is executed when the price hits $11,250, meaning you can get some coins before the price increases further.
Placing a sell-stop market order, on the other hand, allows you to sell Bitcoin when its price falls. This helps reduce losses in case you purchase Bitcoin and its price goes down. A sell-stop market order at $10,900 means you wouldn’t lose as much if you bought at $11,000.
A limit order works in a similar way. Placing a limit order helps you buy Bitcoin at a price point you’re willing to pay and sell it for the minimum price you’re willing to accept.
If Bitcoin is trading at $11,000 for quite a while, you may want to get more coins to gain profits in case the price increases in the future. So, you can place a buy limit order that executes when the price hits $11,100. Through this, you wouldn’t be too late to ride the wave in case the price goes up even higher.
A sell limit order, meanwhile, helps cap your losses should Bitcoin fall in value. You can place a sell a limit order at $10,900 so you wouldn’t be hurt as much if the value drops lower than this specified amount.
How to Start Using Stop Losses
All this might sound confusing until you start trying them out yourself. The good news is that most cryptocurrency exchange platforms offer the stop loss feature by default. Crpto Code, a cryptocurrency trading robot, also provides this feature, enabling you to minimize losses while making good trades using its advanced trading algorithms and predictive analytics.
Using stop losses as soon as you start trading digital currency helps achieve your goals quickly. As a beginner, it’s recommended to use market orders first because they are easier to fill than limit orders. You should also constantly monitor your stops. The last thing you want is to ignore your stops and find out too late that the price has increased or decreased more than what you’d anticipated.
Perhaps the biggest benefit to using stop losses is that it takes your emotions out of the equation. It’s tempting to hold on to your digital coins with the hope of seeing their values increase tenfold in the future. But what if prices suddenly plummet? Stop orders present an easy solution to locking in your gains while reducing your losses.
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