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Stop loss or loss limit (Stop Loss) It is a kind of safety valve to prevent loss. Limit loss and service strategy (feature) Basically, it is used to determine the appropriate time to exit from transactions by traders who are active in various types of financial markets with a short-term and medium-term perspective. These people use the limit of loss or stop loss in digital currency transactions in order to determine the range of profit and loss and stop loss transactions. Of course, in some cases, the stop loss order or limit loss in forex and other financial markets can also work in the profit or at the zero to zero point..
My suggestion to risk-averse people is not to enter the capital market. Because this market may have a percentage of risk even in the best case. Also note that the loss limit or stop loss in digital currency trading is one of the important and fundamental rules to prevent further losses in trading and preserve capital.
In the continuation of this article We will further examine the limit loss or stop loss strategy in digital currency trading and answer your questions such as what is a stop in digital currency? How to activate the loss limit? How to put a stop loss? What does eating stop mean? And we will also answer the meaning of stop in forex.
What is stop loss ?
One of the most important and basic rules in financial markets is stop loss. The loss limit is a number that, when the price reaches it, prevents more losses in transactions and can somehow protect trading assets. Of course, in some cases when the price moved forward from the stop loss or the loss limit based on the forecast, it can be done in order to be risk free. loss stop at the point of entry) or profit also used. In fact, the purpose of stop loss in digital currency transactions is to limit possible losses by closing the transaction when the price moves in the opposite direction..
When setting a stop loss order, the trader or investor specifies a predetermined price level, which is referred to as the stop loss level or stop price. If the price reaches this specified level, the order Stop Loss It is executed and the transaction is closed. The purpose of traders with stop loss or limit loss in forex and other financial markets is to prevent further losses in case of movement against the direction of market analysis and to limit the risk of the transaction. Stop-loss strategy orders can be especially useful in volatile, unpredictable markets with sudden and significant price changes.
Based on their trading strategies, traders predetermine stop loss levels and protect their capital by automatically closing trades at predetermined levels if the market moves against the direction.
The importance of stop loss strategy in trading
Conducting basic transactions and preserving capital is one of the most important points in financial markets. It is very important to consider this principle when entering into a transaction. For this purpose, I emphasize that you only involve a small part of your capital and do not risk your entire capital in any way. In fact, one of the biggest mistakes is to enter the entire capital, especially the hard-earned capital and the result of efforts in the capital market. With a correct and principled determination These tips can be observed for Stop Loss transactions.
In fact, by reaching the stop loss price and activating it, the account capital management is properly followed and prevents big losses in case of violation of the analysis .
Another time when you can realize the importance of stop loss or limit loss in forex is during important economic news and celebrity speeches and important reports. In these cases, the markets are accompanied by big movements and if the market moves against the direction of the transaction, there will be big losses. Here, the loss limit can help traders and protect their capital from big losses.
An example of the importance of stop loss in digital currency trading
For example, suppose you keep your cryptocurrency assets in an exchange like Binance. When trading in Binance, you can specify a stop loss. In this section, you inform the exchange that if the price of the desired currency is When X arrives, the whole balance or a part of it to the Y part to sell Numbers X and Y Both are determined by you. One of the common methods is to determine the limit of loss using technical analysis.
It is noteworthy that the loss of a part of the profit is also recognized as a kind of loss. Therefore, another reason for the importance of observing the loss limit can be introduced to prevent profit reduction.
Stop Loss It is often used in short and medium term transactions. However, holders and investors can also use this tool to their advantage. Due to the extreme fluctuations in the price of cryptocurrencies, the sell order should be created and registered automatically if the loss limit is exceeded. Otherwise, it is possible that the work will be done before the person is informed. The investor or trader determines the loss limit so that if the price falls below it, the currency in question can be sold at the price that he has determined before..
Important points about the limit of loss and how to use it
Orders to limit profit and loss in trade are classified into two parts: stop loss and take profit. These two categories are used to control market positions and capital and risk management.
- Stop loss or loss limit (SL): Maximum loss in the transaction
- Tick profit or limit of profit (TP): Maximum profit in the transaction
When the value of your coins is decreasing, you can determine exactly how long you want to keep them. Determining the loss limit allows traders to measure favorable conditions for trading in the market before entering. In response to the question, what does stop mean or what is the meaning of stop in forex? It can be said that by determining the loss limit and stop loss in the transaction, the trader determines when it is appropriate to exit the market. Note that setting Stop Loss manually, especially in the cryptocurrency market, is not sensible and may not be feasible.
Different models of determining the limit of loss
By using the right method to set the stop loss or loss limit in forex, you can prevent your property from being hunted to a large extent. Determining the exact amount of stop loss depends on the trading strategy of each trader. But in the following, we are going to the practical methods of stop loss Let’s mention stop loss in technical analysis :
Fixed stop loss or static stop
The name static stop itself expresses the nature of this method. Setting stop loss at a specific and fixed price is called static stop. In this method, the stop loss order is not executed until the transaction has reached the specified range or the stop price. And the trader or trader, regardless of the technical tools, based on the knowledge of his mood and property, determines a pre-determined number as the loss limit in transactions.
Static stopwatch with indicator
The Average True Range indicator is an efficient tool for traders to determine the limit of loss in all trades. The indicator is actually a set of algorithms and mathematical functions that can be used to provide good estimates of the price movement of an asset. By using indicators such as the average of the true range, traders can take help from the newly obtained data in the market in order to reduce the risk of trading.
Trailing Stops
For beginner traders, it can be argued that static trailing stops are useful. But other traders use stops in a different way to manage the trade and maximize their dominance. Trailing Stops are a type of stop that is adjusted based on the movement of transactions in the trader’s favor so that it is possible to further reduce the risk of transactions. This type of stop loss allows the trader to eliminate his initial risk in trading.
Manual Trailing Stops
Traders who are looking for the highest level of control over their trades can use manual trailing stops. In the Manual Trailing Stops method, the position moves according to the plan and the loss limit changes accordingly. As the position moves in favor of the trade (lower), the trader will lower the stop.
Effective factors in determining the extent of damage
Among the influential factors in determining the stop loss, we can mention the characteristics of the investor in terms of time perspective and his risk tolerance in investment. In the following, we specify the main factors affecting the determination of the loss limit:
- An important support trend line or share price floor
- Elliott waves
- Fibonacci
- Twin floors
- noisy pattern
- Moving the loss limit or changing the position of the loss limit to a higher or lower point
Important principles in determining the extent of damage
Although there is no general rule for determining stop loss; But there are basic points that always need attention when buying Bitcoin and other digital currencies:
- Pay attention to the importance of time perspective! For example, setting stop loss for short-term traders is different from stop loss for long-term traders.
- Profit reduction is also considered a kind of loss; Therefore, when the price of your property goes up, the loss limit should be increased based on the price.
- The loss limit should never exceed 10% of the purchase price, which means that you should not lose more than 10% of your purchase amount.
- In long-term and medium-term purchases, choose a stop loss on a valid support range. (Between 10 and 20 percent lower than the purchase price)
- Changing the loss limit without having a logical and technical reason is a common mistake. Sometimes, when the price approaches the stop loss, traders remove or change it and wait for their losses to decrease or disappear. Maybe this action will initially compensate or reduce the loss, but in the long run, the result will be the destruction of the investment strategy and plan.
- If you have a small capital at the beginning of your business, it is better to do your trades in small sizes and small volumes. By observing this, your stop loss will be more reasonable and you will not suffer losses due to the mismatch between the balance and the account size. Matching this factor together makes the amount of risk reasonable and gives more fluctuation space to the prices.
Stop loss is very important in regular markets such as the cryptocurrency market, where a change of tens of percent in the price of a cryptocurrency per day is completely normal. Therefore, choosing the stop loss at the right point is one of the important things for every trader to avoid large financial losses. For example, in a situation, it is possible that the price reaches your specified loss limit and you get out of it. Then the price movement will reverse with a high speed and move in the direction you intended. This event is called stophunt strategy (Stop hunt) is introduced .
Such events in the transaction should not cause you disappointment. Rather, you should equip yourself with assets protection tools. The person of breakouts (Fake Break Out) , using the ATR indicator and multiple entry and exit points and not placing stop loss in obvious areas are among the solutions that help you choose the loss limit at the right point.
Setting a stop loss or using a limit loss strategy is essential if you want to profit from your trades or avoid possible losses .
no Determining how much you can afford to lose depends entirely on your attitude toward the market. Every trader must have a specific strategy for himself and according to that determine his loss limit or stop loss in digital currency transactions..
When the market is volatile, the price of Bitcoin and other assets can fluctuate wildly. In this situation, specifying a stop loss can lead to a disaster. Because before the price is restored, the trader exits the transaction at the set price. And it is very likely that he not only did not make a profit, but also suffered a loss.
Yes. But note that if you have little capital, it is better to do your transactions in small volume and small sizes. With this method, you can determine the loss limit more logically.
