Cryptocurrency Stop-Loss Strategies
Probably the hardest part in cryptocurrency trading in UAE is to reduce your losses. The sudden increases and decreases in a coin’s value is what make stop-loss strategies so important. So, what is stop loss?
A stop-loss order helps to reduce your losses in cryptocurrency trading. Let’s suppose you buy Bitcoins at a rate of $9000 per coin. If the price increases, you can sell and earn cash. However, if the price reduces, a stop-loss order will help you to sell your coins at a set price.
Although the selling price will be lower than the original purchasing cost, it helps to reduce further losses. For instance, the price might go down to $8500 but the stop-loss order could help you to automatically sell at $8800 or any other price you set. In this article, we will cover stop-loss strategies in detail.
The Full Stop Loss
This stop-loss order is commonly used to prevent losses. Let’s take an example to understand this kind of strategy in a better way. You buy Ethereum at a price of $650 and you set a stop loss rule to automatically sell it if the price drops below $650. By using this strategy you won’t have to worry about losing anything.
On the other hand, let’s suppose the price drops to $649 and then starts rising again to reach $655. If you buy Ethereum now, you will have to pay additional $5. So you have suffered a loss. Depending on the situation and the value of the cryptocurrency, you have to decide whether this strategy is effective or not.
You can make a good decision by observing the recent trends to get an idea about any sudden rises and drops. If the price chart shows frequent ups and downs, you should not use this strategy. However, if you are a new person in the cryptocurrency world, you can use this strategy to save yourself from any loss.
Partial Stop Loss
This strategy can be used if you are prepared to take a little risk. Let’s assume you buy Bitcoins at $9000 and then set a partial stop loss rule to sell half of your coins if the price drops below this value.
In this case you would still have half of your Bitcoins even if the price drops and then rises above $9000. You can then closely observe the trend to benefit from the higher price by buying more Bitcoins or selling the previous ones.
Trailing Stop Loss
By setting this rule, you can sell your coins in different parts. For instance, you bought ten Bitcoins at $8500. When the price drops to $8400 you sell two coins. At $8300 you sell two more coins. In this way, you can limit your losses.
Stop-loss strategies can be a great way to help you minimize losses. Make sure to study the price trends first.
